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Thank you for adding so much detail to my oversimplification. Let's get back to the original question, though, which is about why shareholders have so much pow

Thank you for adding so much detail to my oversimplification. Let's get back to the original question, though, which is about why shareholders have so much power. My contention is that shareholders (Via the board) have the most direct influence on senior executive compensation. Yes, it's indirect. Yes, there are biases that push it upwards. But this doesn't change that shareholders have much more influence. A bondholder doesn't get a direct say unless they have covenants that protect them. (At least until a default) Non-management companies don't get a direct say either. They can vote with their feet but that's about it. Communities rarely get a direct say. So what we're left with is companies deciding, "Do I act enlightened about caring for more than shareholder interests?" The way to encourage this from an employee's point of view is competition between firms for their services. Your (detailed and correct!) analysis doesn't change any of this.

dctoedt 13y ago
> My contention is that shareholders (Via the board) have the most direct influence on senior executive compensation. Typically, institutional investors vote the bulk of the shares in a U.S. public company's election. The investment managers and governing bodies at such institutions often don't have strong feelings about things like limiting executive compensation. Sometimes, but not always, institutional investors follow the recommendations of proxy advisory services such as ISS and Glass, Lewis (http://en.wikipedia.org/wiki/Proxy_firm http://en.wikipedia.org/wiki/Proxy_firm). Those services have started to pay more attention to executive compensation in recent years. But as I understand the law, SEC regulations still relegate shareholder "say on pay" votes to non-binding advisory status.
- danielweber 13y ago
  The investment managers and governing bodies at such institutions often don't have strong feelings about things like limiting executive compensation. Probably because it doesn't have much effect on their returns. I'd love to someone to try to prove me wrong, though. Start up a Vanguard-like fund that only invests in companies that pay their CEOs below average, or some similar metric. It just might turn out that there's a bunch of ten-dollar bills on the street we are all missing and the economy as a whole would be better off if they turn out to be right. Either way, it would be valuable data.

dctoedt 13y ago

> My contention is that shareholders (Via the board) have the most direct influence on senior executive compensation. Typically, institutional investors vote the bulk of the shares in a U.S. public company's election. The investment managers and governing bodies at such institutions often don't have strong feelings about things like limiting executive compensation. Sometimes, but not always, institutional investors follow the recommendations of proxy advisory services such as ISS and Glass, Lewis (http://en.wikipedia.org/wiki/Proxy_firm http://en.wikipedia.org/wiki/Proxy_firm). Those services have started to pay more attention to executive compensation in recent years. But as I understand the law, SEC regulations still relegate shareholder "say on pay" votes to non-binding advisory status.

danielweber 13y ago
The investment managers and governing bodies at such institutions often don't have strong feelings about things like limiting executive compensation. Probably because it doesn't have much effect on their returns. I'd love to someone to try to prove me wrong, though. Start up a Vanguard-like fund that only invests in companies that pay their CEOs below average, or some similar metric. It just might turn out that there's a bunch of ten-dollar bills on the street we are all missing and the economy as a whole would be better off if they turn out to be right. Either way, it would be valuable data.