August 31, 2009
Please accept my comments on the proposed TARP Executive Compensation regulation. I preface my comments with background concerns that I wish the SEC to take into account when you make your decisions about the final rule.
Corporations obviously have a responsibility to their shareholders. In exchange for the limited liabilities we give their owners, they should also accept some responsibilities to their employees and to the communities in which their plants are located. Workers deserve increased compensation for their contributions to corporate performance as much as executives do. Corporations do a disservice to America when they desert one community for another, leaving American taxpayers to support the unemployed and dispossessed in those communities. They do a disservice to all when they took excessive risks and knowingly pursued unsustainable policies that contributed to the credit crisis and to unconscionable public unemployment, foreclosures, and general hardships.
As you know, in recent years America has been experience an increasing divergence between the incomes of the wealthiest Americans and the majority of Americans. The middle class has been shrinking. Corporate contributions to political campaigns are said by knowledgeable political analysts, such as Bill Moyers, to influence elections and also to virtually control whichever political party the public elects. As a result, Americas government is behaving more like a plutocracy than a democracy. Scholarly reports suggest that corporate executives have the ability to game their corporate governance compensation rules, and that some have done so putting their personal profit ahead of their corporate obligations. While free enterprise is what has made America great, appropriate regulation is necessary to limit excesses of greed and power and to establish domestic tranquility and to insure the general welfare.
The above factors influence my opinion on corporate compensation, and I hope influence the Commissioners decisions about, and amendments to, the proposed rule as well.
In Germany, legislation requires corporate compensation to be determined from an independent supervisory board:
Germany has a two-tier board system comprising management board and supervisory board, which makes a much clearer distinction between the functions of management and management oversight than the one- tier board system, in which these functions are assembled in one body. In the German two- tier system the separation of management and oversight functions is established by the statutory provisions. Government Commission, German Corporate Governance Code, April 21, 2006, Press release
German automotive companies seem to have thrived under these regulations, so they don't seem to have had an adverse effect on performance of corporate management. Regulations that require TARP companies to incorporate such a split might be preferable to the shareholder vote provision under consideration. Independent supervisory boards elected by shareholders, possibly with some workers representatives chosen by employees, should be able to have a more intimate and knowledgeable understanding of the merits and value to the corporation of the individual corporate executives.
The regulations should be made to apply to corporations who do business in America, regardless of the country in which they are incorporated. I note that Europe's regulatory bodies have imposed restrictions on some American corporations doing business there. Such a provision would nullify some comenters concern about corporations emigrating to countries whose regulations are unconcerned about greed.