Arthur Levitt ’52 got his picture in the New York Times today.

EphHunk? The article reports that:

The American International Group has hired Arthur Levitt, a former Securities and Exchange Commission chairman, as a consultant to the board in an effort to quell dissent from institutional investors. He will help evaluate potential nominees to the board and advise on corporate governance issues.

The appointment of Mr. Levitt is the latest step taken by the board to repair A.I.G.’s reputation in the face of state and federal investigations. The New York attorney general and the New York insurance department have sued the company, a giant in commercial and life insurance, and its former top two executives, accusing them of manipulating financial statements and misleading regulators.

“Arthur Levitt is a highly respected corporate governance leader who we expect will bring additional reforms to the A.I.G. board,” said Richard C. Ferlauto, director of pension and benefits policy at the federation. “The issues outstanding are three open board seats, shareholder access to the proxy for board nominations and the structure and operation of the audit committee.”

See here for previous EphBlog commentary on Levitt. I have never been able to get anyone to take seriously my proposal (reprinted below) for reining in executive pay. Surely this is something that Ephs across the ideological spectrum would agree on?

The SEC should pass a regulation requiring that all publicly traded companies allow their shareholders to vote on the following (binding) resolution each year.

The total compensation of both the CEO and the CFO shall not exceed $1 million in the coming fiscal year.

Those who dislike government meddling in business have little to complain of here since the government isn’t telling any business how to set salaries. The government is just requiring that business owners be allowed to vote on a specific option.

What would happen of such a regulation were in place? Senior executives would complain long and loudly. Many large shareholders — especially pension funds — would gladly vote for lower compensation. Many mutual funds would feel pressured to do so. My guess is that the resolution would pass at many companies.

There would then be significant (downward) pressure on executive salaries across the board. If you’re the CEO/CFO of a big company, there are very few employees who you think should be paid more than you are. Of course, this won’t allow you to pay people (much) less than they could get elsewhere, but the number of people for whose services the “market” is willing to pay more than $1 million per year is small. The very best baseball players, rock stars, entrepeneurs and Wall Street traders would still make millions, but only because any attempt to lower their pay would cause them to go elsewhere with their services.

Some would say that this plan won’t work since the companies whose shareholders agree to pay more than $1 million per year (whether they be public or private companies) will snap up all the “best” executive talent. Maybe. But, as Jerry Useem ’93 points out, our ability to measure executive talent is so limitted that it would be hard for any company to easily identify a CEO candidate who is significantly better than many other candidates for the job.

There is a sense in which such a scheme, if implemented, would amount to implicit collusion among the employers of senior executives. Perhaps. But collusion in the service of class warfare is no vice.

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