Let’s look at the right way first.
Barington Capital Group, a New York investment firm with an activist bent, last Monday sent a five-page letter of complaint to the chief of Ameron International Corp. in Pasadena. Barington, claiming to represent a group of shareholders who own 3.7 percent of the company, precisely and dispassionately laid out its argument. Its letter included a chart showing how the stock of the company lagged its peer group as well as two broader market indexes over five time spans.
Barington made other intelligent arguments. It said, for example, that Ameron should cut internal costs since they equal 6 percent of sales vs. only 2 percent at a group of peer companies.
Finally, Barington said the company’s top exec is getting too much money, again scoring with fact-based points. James Marlen, Ameron’s chairman and chief executive, got pay over a five-year span equal to 9 percent of Ameron’s current enterprise value while the average CEO’s pay for the peer group equaled only 1 percent.
The point here: It’s the Ameron shareholders who are objecting to their CEO’s pay. They made reasoned arguments, complaining in the wider context of the performance of the company’s stock, the decisions of the top execs and the size of the company. The letter is devoid of emotion.
Now it’s up to Ameron to respond. The executives can make their own intelligent, fact-based arguments to refute Barington. Or they could concede some points and make changes. Their job is to win the hearts and minds of stockholders, as in any democracy.
(Last week, 56 percent of Ameron’s shareholders voted to go along with Barington’s proposal to separate the chairmanship from the CEO job, but that wasn’t enough to overcome Ameron’s supermajority rule. However, we’ve seen this rodeo before, and I’d wager that shareholders ultimately will get their way on that point, at least. Which is the way it should be.)
Now, let’s look at the wrong way.
The Obama administration’s so-called pay czar, Kenneth Feinberg, has decreed that cash pay of $500,000 a year is about the limit that he can stomach. That’s regardless of an executive’s record. Or his ability to create stockholder wealth. Or the size of the company.
It’s a limit that plays well to the angry crowd, but it’s a limit that’s completely arbitrary, based on emotion, not facts or reasonable arguments. It’s like me saying Tom Hanks should get no more money for starring in a movie than Pauly Shore because, well, I think Pauly makes enough. So there.
Those pay limits reportedly played an important role in the recent surprise departure of John Pleuger as chief executive of International Lease Finance Corp. in Century City. (ILFC is owned by the government-controlled American International Group and therefore subject to whatever limit Feinberg dreams up.)
Pleuger reportedly is interested in teaming up with Steven Udvar-Hazy, who left ILFC two months ago to start his own rival aircraft leasing firm. And since the real value of ILFC is between the ears of Udvar-Hazy and Pleuger, any rival firm they operate could seriously challenge ILFC. Maybe they could put it out of business.
Think of the potential destruction Feinberg has inflicted on ILFC just because he wanted to stick to some arbitrary, feel-good limit on pay. If Feinberg weren’t in a government job, think of the shareholder lawsuits that’d be targeting him now, and rightly so.
Yes, top execs make a lot of money. Sometimes egregiously so. But there’s an intelligent, constructive way to handle it. And it’s not Feinberg’s emotional, destructive way.