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Hold the Mayo

A 2012 column from the Boston Globe:

His name is Mayo Shattuck III, and when the authoritative book about the absurd income disparities that have come to dominate America in the early 2000s is written, his smiling face will almost certainly be on the cover.

Raised in Cohasset and Hingham, educated at Williams, he is now the chief executive of the Baltimore-based Constellation Energy Group, which happens to own four power generating plants around Boston, three in Everett and another in Weymouth.

But enough of the pleasantries, because here’s what Mayo Shattuck III was paid in 2010: $15.7 million. That’s $301,000 a week, or almost exactly twice poor Tom May’s package. So the Constellation Energy Group must be an unbelievably well-run company, right? Well, no. Actually, the company lost $1 billion one recent year, barely avoided bankruptcy, aborted one merger already, and saw its stock plunge from over $100 a share to the low $20s, all with Mayo Shattuck III at the helm.

The Maryland governor has complained about Mayo Shattuck III’s pay, as has the editorial page of the Baltimore Sun, members of the Maryland Legislature, and some of the largest Constellation shareholders, but to no avail. Mayo Shattuck III also chairs the company’s board, the same board that sets his pay, whose members make a minimum of $195,000 a year in cash and stock for nominal work.

Even the company that Constellation is currently merging with, Chicago-based Exelon Corp., has sent hints that it doesn’t want any part of him, but has agreed to make him executive chairman just to get the deal done.

So what is Mayo Shattuck III good at? Golf. And at that, he’s great, sporting a handicap so low that a leading golf magazine ranked him as one of the 10 best golfing CEOs in the nation. For that honor, his board probably gave him another raise.

The Alumni Office will want to invite Mayo out for a round of golf at Taconic as it ramps up planning for the next capital campaign.

Want to do something about executive pay at large (public) companies? Easy! Do this:

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, entrepreneurs 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 talents.

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, our ability to measure executive talent is so limited 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.