Power Grab

The Obama administration is engaged in the most sweeping power grab in modern American history, but few people seem to care. In barely four months, we've witnessed the president and his minions taking over insurance companies, banks, and car companies, forcing private companies to sell off assets, appease unions, and stiff bondholders. Administration officials have insisted some companies take government handouts even if they don't want them and told others they can't pay back the money they've borrowed until the government gives them permission. Now, the president has decided he'll appoint a "compensation czar" whose job it will be to decide what constitutes fair pay for corporate executives. Why stop there? And, of course, they won't.

The latest move — the appointment of Washington lawyer Kenneth Feinberg to oversee pay of the top employees at seven companies that have taken government funds — may not seem radical, but it is. Earlier this year, in response to public criticism of the retention bonuses paid to some executives at the troubled insurance giant AIG, the administration proposed capping executive pay at $500,000 at firms receiving government assistance through the Troubled Asset Relief Program. But Treasury Secretary Tim Geithner abandoned that plan when he finally figured out that the execs would simply bail on the company, leaving the government without experienced and talented hands on deck.

So now the administration is moving to Plan B: Forget about pay caps per se but appoint a government overseer to set pay individually. Until now, in publicly traded companies that job fell to the board of directors and its compensation committee, whose legal and fiduciary responsibilities entail acting on behalf of shareholders. Directors are elected by the people who own the company: from individuals who own a few shares of stock to institutions and mutual funds that may own millions of shares.

The government, primarily through the Securities and Exchange Commission, oversees the board's stewardship, while other entities play a role as well. The securities exchanges — the New York Stock Exchange, NASDAQ, etc. — also have rules that govern the conduct of boards of directors, including restrictions on who sets executive compensation.

Compensation committees act independent of management, but they don't act in a vacuum. They often hire compensation consultants (who must have no ties to the company) to advise them on the best pay practices. They evaluate their pay structure compared to other companies of similar size and complexity or who are in the same line of business. They evaluate the performance of key executives against financial results, the achievement of personal and company objectives, and other criteria. It is a long and arduous process (I know, for more than a decade I've served on and now chair the compensation committee of a NYSE company).

And the rules governing disclosure of executive compensation have become much stricter in recent years, especially since the enactment of Sarbanes-Oxley, federal legislation that passed in the wake of Enron and other recent corporate scandals. The law now requires that, in addition to a Compensation Committee Report on executive pay, management must produce an extensive compensation discussion and analysis to be included in proxy statements sent to all shareholders. The information includes a table showing exactly how much the CEO, chief financial officer, and three highest-paid employees in the company earn, including bonuses, stock options and grants, and what benefits and perquisites they are entitled to and their cost. Similar information is provided for director compensation. If shareholders don't think they're getting their money's worth from these executives or directors, they can dump the board of directors at the next election. Or at least that's how it is supposed to work.

But enter the Obama administration to rewrite the already extensive rules. Now one man — the compensation czar — is going to oversee this process at seven major corporations. And who oversees him?

From the president on down, the Obama administration is filled with people who have little or no idea how the market works. Most have never drawn a paycheck in the private sector, much less had to meet a payroll or make a profit. But they're convinced they know how to run things, down to the last detail. There's no word adequate to describe the sheer arrogance of this group.

Linda Chavez is the author of "An Unlikely Conservative: The Transformation of an Ex-Liberal." To find out more about Linda Chavez, visit the Creators Syndicate web page at www.creators.com.

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