April 14, 2009
UCLA Anderson Hosts Panel Discussion on Executive Compensation
Experts foresee government regulation and shareholder activism
By Paul Feinberg
Viewed through the prism of the current financial crisis, the excesses of executive compensation can now be seen in a new light. In a panel discussion titled "Executive Compensation: How Much Is Too Much?" convened in UCLA Anderson's Korn Convocation Center on April 14, 2009, the management school took its turn in addressing this issue in an entertaining and informative session.
The session, moderated by UCLA Anderson's Dean Judy Olian, featured Robin Ferracone, founder and CEO of RAF Capital LLC and founder and executive chair of Farient Advisors; Jim Barrall, partner in the law firm Latham and Watkins and an expert in benefits and compensation; and Prof. David Lewin (MBA '67, Ph.D. '71), UCLA Anderson's Neil H. Jacoby Chair in Management. The panel covered a wide range of issues in sixty minutes, from the most outlandish executive perks to the types of legislation expected to come as a result of the recession and the subsequent attention Congress is paying to executive compensation issues.
The panel agreed for the most part that "alignment" or in the case of the current crises "misalignment" was a major part of the problem people have with executive compensation. Alignment is the concept that corporate performance is tied to executive compensation. In the recent past, executive compensation was all too often tied to short-term gains that appeared on a company's books for a quarter or two, but were not reflective of actual corporate gains or success."The alignment issue is key," Ferracone said. "Alignment is far more important than the magnitude of corporate salaries and benefits."
"Regulation is coming," Lewin said, noting that there has always been compensation regulation on the lower end of the pay scale in the form of minimum- and living-wage laws. "Executive compensation regulation is coming from the government, that's top down, and from shareholders, that's bottom up." The least likely place for regulation, Lewin believes, is in between, where compensation committees and boards of directors lie. Lewin believes that such entities are often too close to CEOs and that more diversity is needed on boards of directors as a result.
Barrall concurred with the idea that shareholders will play a larger role in executive compensation when all is said and done. "Shareholders will have (some) say on pay," Barrall said. "Shareholders will vote on the compensation of executives." But Barrall said - and Ferracone agreed - that tinkering with the tax code (as is being discussed and as has been done in the past) won't work.
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