Once upon a time, few if any investors seriously challenged executive pay.  Executive compensation was, as always, a hot topic, but in the days before say-on-pay votes, it wasn’t easy to effectively object to excessive pay packages.  Moreover, as one of the more outspoken members of the investor community once told me, as long as a company was performing well for its stockholders, investors weren’t going to second-guess the board on the subject. 

That changed in the early 2000s, when Ray Irani, the man who succeeded Armand Hammer as CEO of Occidental Petroleum, was voted out as a board member after pulling down $1.2 billion in compensation over 20-year period, an average of $54 million a year.  (For you young folk, Armand Hammer is not to be confused with his great-grandson, the actor Armie Hammer.  Perhaps more about the elder Hammer in another post.)   While $54 million per year doesn’t sound like much by today’s standards, it was a big deal at the time.  And when I asked the same investor what prompted the rebellion, the response was, in effect, “sometimes too much is just too much.”

Perhaps.  And objections to outlandish or outrageous executive pay did increase, leading, among other things, to the provisions of the Dodd-Frank Act requiring most public companies to hold periodic “say-on-pay” votes.  However, these votes have rarely failed (unless you agree with Institutional Shareholder Services that anything less than 70% support for a say on pay vote is a failing grade), and it’s no secret that executive compensation has soared.

At this point, a digression seems appropriate.  Many years ago, I attended a conference at which one of the speakers was a highly regarded compensation consultant.  During her remarks, she pointed out that every single initiative to control executive compensation, whether from the government, investors, or others, had been followed by an increase in executive pay.  History continues to prove her correct.

Moreover, it seems to me that there has always been one glaring exception to the increased levels of investor concern about executive pay – namely, the founder/CEO.  Think about it – the founder/CEOs of companies such as Apple, Amazon, Google, and so on have become among the world’s wealthiest people, without anything close to the degree of squawking that occurs when a “regular” CEO rakes it in.  It’s an understandable exception – someone who creates something out of nothing, particularly when that “something” is an enormous, successful enterprise that employs thousands of people, arguably deserves a break – and big bucks.

Now comes Elon Musk, a once-admired founder/CEO who has become something of an enfant terrible.  His ginormous special bonus – which has been valued at more than $50 billion (eat your heart out, Mr. Irani) – was overturned by the Delaware courts after having been approved by stockholders, and is now being resubmitted for shareholder approval.  I won’t be shocked if the stockholders approve it once more, but given some of Mr. Musk’s troubles – ranging from sales declines and layoffs at Tesla to the questionable distraction of his purchase of X (FKA Twitter), his sometimes odd behavior, and other problems – I also won’t be shocked if the reproposal fails.  If that happens, I wonder whether the pass that seems to have been given to other founder/CEOs will begin to evaporate, and if they will be held to the same standard as those “regular” CEOs.

I also wonder if the whole saga will cause companies to be more thoughtful about how they justify high levels of compensation.  I doubt it, but anyone who reads proxy statements knows that some of these justifications are questionable.  For example, so many proxy statements say, in effect, that high compensation is necessary to retain talented executives.  I may be wrong, but in my experience CEOs love being CEOs and in at least some instances would stay even if their pay were cut.  To say nothing of the fact that when you’re pulling down tens of millions a year, it seems questionable that you need tens of millions more to make you happy.