Investment News has an ironic article about President Bush calling for more transparency in executive and director compensation. All the hoopla seems to be due to the $180M compensation package of Pfizer’s outgoing CEO.

From the Investment News article:

[Bush] commended rules adopted in December by the Securities and Exchange Commission requiring better disclosure of executive and director compensation. Corporate board members “need to show the world that America’s businesses are a model of transparency and good corporate governance,” the president said.

I agree with the sentiment although I find it rather ballsy of Bush to be calling for increased business transparency when his political administrative team is the most secretive in modern history. But let’s take a look at the merits of the argument.

The $180M parachute compensation package of Pfizer executive Hank McKinnell just might be an indicator that something is wrong with executive pay. There may be something to that “old boy’s network” I keep hearing about up at the board level of the largest companies. I initially assumed it was performance-based, but during Hank’s five-year tenure at Pfizer, the stock actually went down.

Or put another way:

In a research note to clients this morning healthcare analyst Les Funtleyder figures the exit package works out to “A little over $2 million for every billion dollars in market cap lost during his tenure.”

Ouch. Sure seems like something’s wrong with this company. If I was a shareholder of Pfizer I’d sure be pissed and ready to vote in some new board members. Sure enough, shareholders were already angry at McKinnell’s poor performance and his excessive retirement package triggered a proxy fight:

For some investors, already angry over the stock’s slide, McKinnell’s retirement package was a flash point. At Pfizer’s April annual meeting in Lincoln, Neb., a plane flew overhead trailing a banner that said, “Give it back, Hank!” Two proxy advisory companies had called for removal of board members and the AFL-CIO led a protest against the retirement package. The board members were re-elected, however.

Ok, so they fought and lost, leaving me still confused. Is something actually wrong? And if so, is it symptomatic of greater problems with corporations or is it just the case of getting some bad apples on the board of Pfizer. I don’t believe there’s a huge conspiracy to keep an “old boy’s network” of insiders running Pfizer. The shareholder ownership isn’t concentrated in the hands of a few individuals. It sounds like there was honest debate as to whether the company is being properly managed.

Remember that even a number like $180M is still a small fraction of Pfizer’s annual $43 billion in profit. Also remember that this is not a good example of average executive pay. This is an extreme outlier. I guess I’m with Bush on this one. Increased transparency is a step in the right direction and government regulation of executive compensation would be a horrible mistake.