Machine Design

Accountability in the eyes of legislators

Leland Teschler, Editor

Spring is often the time when talk in the office turns to pay raises and salary increases. The same often holds true for top company managers. But if you are running a company, discussions about your pay can get complicated. The reason is that companies have caught a lot of flack from politicians over the years about how they pay their top people. When he was campaigning in the 1990s, for example, Bill Clinton wanted to stop companies from being able to deduct “excessive executive pay” from their taxes. In the 2008 presidential race, both candidates dissed CEOs “making more in one day than their workers are making in a year.”

Legislators have displayed particular angst over what company managers make in the stock market. You can trace this hand wringing back to legislation passed in 1993, which eliminated corporate tax deductions for executive pay above $1 million. It had the unintended consequence of dramatically boosting performance-based pay in the form of stock options, just as the stock market took off in the roaring 1990s.

Executive remuneration skyrocketed as a result. But granting of stock options this way brought a focus on managing companies for short-term results and, in a few cases, prompted illegal behavior by CEOs.

That illegal behavior was one reason political rhetoric about executive pay reached a high pitch in the 2008 presidential race. The tone of both candidates could be summarized by one quote from a campaign speech of the time: “It’s about changing a system where bad behavior is rewarded so that we can hold CEOs accountable, and make sure they’re acting in a way that’s good for their company, good for our economy, and good for America, not just good for themselves,” a candidate said.

Keep that pronouncement in mind as you ponder recent developments to control the perks of another highly compensated bunch: members of Congress. Readers may recall that in November of 2011, the TV show “60 Minutes” did an expose about legislators acting on inside information about public companies. Ordinary citizens can be jailed for benefiting from such information, but members of Congress were exempt from the rules. Many in Congress have access to market-moving, nonpublic information and have benefitted handsomely from it, according to “60 Minutes.” A few months after the TV show aired, Congress passed the Stock Act that made insider-trading laws apply to Congress and Congressional staffers as well.

The Stock Act passed with great fanfare. But recently Congress passed a bill reversing big chunks of the Act with hardly a mention: The e-mailed announcement of it was one sentence long. Specifically, Congress repealed the requirement that its members and staffers post their financial transactions online in a searchable format. Congressional insider trading is still illegal, but now the only way to make sure this has not transpired is by traveling to Washington, D. C., visiting the basement of the House Office Building, and asking to see the financial disclosure forms of the individual you are interested in.

Congress claims posting this information online would pose a “national risk.” Cynics say the only national risk is to Congressional bank accounts.

My take: Congress seems to be a lot better at holding CEOs accountable than themselves.

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