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The Wall Street Journal notes today that there are many corporate executives who are basically being given bonuses for running their companies into the ground despite a law that forbids this behavior. An example:

Still, Lear sought $20.6 million in bonuses for key executives and other employees, including an eventual payout of more than $5.4 million for then-Chief Executive Robert Rossiter.

The Justice Department objected, arguing that the package violated a federal law intended to rein in pay for executives at companies that harmed investors and cut jobs before and during the bankruptcy process.

But a judge approved the payouts, accepting the company's arguments that the executives would deserve them if they met earnings milestones and steered Lear through a quick exit from bankruptcy.

The article tells us that executives are not rewarded for the outcomes of their companies. The paper with help from Valeo Partners found that they could identify the pay of 21 out of 100 of the executives who took their companies into bankruptcy. The not so surprising result?

The executives were earning $8.7 million a year to be failures while the average CEO in a similar company was getting $9.1 million.

The article ended, 'Sen. Charles Grassley, the Iowa Republican who introduced bankruptcy-reform legislation in 2005 that later included the pay restrictions, said: "You can't use subterfuge to get around the law. It surely needs further inquiry."'

Yes, I understand that some companies hired a turnaround artist too late for him to do any good. I understand that some companies hit bad times that are completely beyond the ability of anyone to avoid the problems, but every excuse made for the executives who are paid extravagantly, whether they succeed or fail, is an argument that CEOs should not be paid 300 times the average worker. It may be an argument that thirty years ago they didn't even deserve to get 70 times what the average worker was paid.

The current executive compensation system is broken. Executives, current or retired, sitting on boards raise the pay of other executives, in that way justifying what they themselves had been paid and what they expect to get paid in the future. It's shameful greed and every attempt by Congress to fix this has failed. This is just one more example.

We can do something. We can change the law starting with these corrupt bankruptcies. First, all top executives must be removed from a company when it goes into bankruptcy, no exceptions. Then entire board of directors must be removed, as well. Second, any executive pay in excess of $100,000 for every executive making more than ten times the median salary of the company or in excess of $10,000 for a director for each of the prior five years is clawed back into the estate of the bankrupt company. This includes all forms of remuneration. Third, boards of directors that make contracts with executives that try to get around these rules will be personally liable for the amount they try to bypass and they will not be allowed to use directors' and officers' insurance policies to pay the expenses nor will the company be allowed to indemnify the directors in any way.

For the larger problem, we need to empower shareholders to show that they care what is going on in the companies they own. The boards and executives repeatedly claim that they have to do X, Y, or Z to help shareholders, but shareholders almost always lose big when companies take risks that have put the company into bankruptcy. The actions of executives over the past three or so decades shows that executives and boards are completely indifferent to shareholders in many companies and Delaware law has made it easy for the executives to flip off their shareholders. We need changes, either in Delaware law or in SEC rules that force real democracy at shareholder meetings. Given the technology available today, there is no reason for the annual meeting to be a rubber stamp of executive power. Every owner is owed the right to be a participant at the meeting without having to show up in person. Participating on-line needs to be required. All decisions made must be a majority of those who are voting. Executives and the board must not be allowed to cast any proxy ballots.

Some defenders of this corrupt system say that a shareholder has the right to sell if he doesn't like what is going on. What kind of a right is it to have someone take part of your company from you and then tell you that you just have to put up with it?

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