"Unease Mounts Over Boards' Ultimate Say In Exec Pay"

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There has been plenty of uproar over the massive bonuses Wall Street firms have been awarding employees over the past two weeks. To try to diffuse that,

But Goldman is still paying employees a whopping $16 billion. J.P. Morgan Chase is paying out $9 billion. Some investors say the big payouts are a sign that there is something seriously wrong with Wall Streets compensation system.

NPRs Chris Arnold reports.

CHRIS ARNOLD: Taxpayers and politicians are not the only ones upset about Wall Street bonuses. If youre a long term investor in, say, Goldman Sachs, Morgan Stanley or Bank of America, those stocks are still down between 20 and 70 percent over the past three years. Shareholders have lost a lot of money. But executives and top employees at these and other financial firms are still rewarding themselves with billions of dollars in compensation and bonuses.

Mr. FREDERICK ROWE (Money Manager): It's completely crazy. And it makes people angry.

ARNOLD: Frederick Shad Rowe is a money manager in Dallas and the former chairman of the Texas Pension Review Board. He says bonuses and pay packages at many big public companies have gotten totally out of line and disconnected from performance. He says the S&P 500 is down at 28 percent over the past 10 years, meanwhile executive pay is still through the roof.

Mr. ROWE: It demoralizes everybody. Were all in this together. We live in a capitalist system, but the system has been co-opted or hijacked.

ARNOLD: Basically, Rowe says there's been a breakdown at the level of the board of directors for public companies. The boards approve those pay packages and the board is supposed to protect the interests of the stockowners, the shareholders, who actually own the company.

But in reality, he says, many people on those boards are paid a lot of money by company managements, and they've become beholden to managements. And too often, he says, they approve huge pay packages that siphon money away from shareholders.

Mr. ROWE: What really is the truth is the very small oligarchy has hijacked the system for its own short-term benefit. And its not right, and its not in the interest of America or most Americans.

ARNOLD: Whats more, critics like Rowe say, that these huge pay packages encourage the reckless risk taking that created the financial crisis in the first place. After all, a lot of these same people at the major Wall Street banks clearly made catastrophic mistakes. And now, just a year later, theyre getting big bonuses again. Rowe says that thats not the way capitalism is supposed to work.

Mr. ROWE: Hell no, theyve taken my money and they get the benefit of it, and they don't suffer the consequences.

ARNOLD: Of course, the investors who dont like how executives are being paid can always just sell their stock and pull their money out. But Rowe is heading up a shareholder rights group thats pushing for more power for shareholders to be able to get rid of directors that dont rein-in compensation.

Fred Lipman, is a lawyer who advises companies and whos written a book about responsible approaches to executive pay. You know, is something broken here or is the markets sort of working like a shit?

Mr. FRED LIPMAN (Lawyer): Well, I think the issue of executive bonuses has become politicized.

ARNOLD: Lipman says the bank bailouts have politicians and other people particularly upset about bonuses at the moment. But he thinks the government should largely stay out of it. He acknowledges that there have been problems with excessive pay, but he says the market is reforming itself.

Mr. LIPMAN: Overwhelmingly, more and more compensation committees are getting it. They are trying to exercise best practices, and theyre under pressure from a lot of constituencies to do so.

ARNOLD: Lipman is glad that many of the major banks say that theyre planning to tie more compensation to the longer term performance of their companies. Bank of America, for example, is expected to start reclaiming or clawing back bonuses if an employees bets later go bad.

But some who track executive pay dont think that overall theres been much progress. Patrick McGurn is an attorney with RiskMetrics Group, which advises investors on corporate governance issues.

Mr. PATRICK MCGURN (Attorney, RiskMetrics Group): Were seeing reform around the margins, but generally it is this just as usual. I think the big bonus payouts this year, you know, are really harkening back to the glory days of the industry and the numbers are obviously eye-popping.

ARNOLD: Meanwhile, President Obama is pushing for a 10-year, $90 billion bank tax to help reclaim bailout money, and the FDIC is floating a proposal to make banks pay a penalty for big pay packages that are not tied to long-term performance.

Chris Arnold, NPR News.