4 ways you can fight greedy CEOs

Don't just fume about grossly overpaid execs and other corporate scams. You can make a concrete difference. Here are the people to contact and steps to take to get reforms under way.

By Michael Brush

The boss has always made a bundle. In 1940, U.S. corporations paid their chief executives 48 times as much as the average worker, on average. No small gap.

But that doesn't come close to today's great pay divide. CEOs earned $11.3 million on average last year, a 27% increase from the prior year and a huge 262 times more than the average worker. Barry Diller, the chairman and chief executive of the IAC/InterActiveCorp (IACI, news, msgs), took home $295 million last year, including pay, bonus and options cashed in, according to the Corporate Library.

What's worse? The CEOs don't seem to see anything wrong with that type of compensation. Diller recently said critics of his pay and similar packages are "birdbrains."

The momentum of CEO pay, obviously, isn't headed in the right direction. But you don't have to be a Democrat to appreciate that the party about to take power may give the little guy a bit more say in how much the big guy gets paid.

In a minute, I'll give you a set of four steps you can take to help get executive compensation back under control. First, another quick look at why such action is needed.

According to the Corporate Library, a corporate governance research firm, here's what the five highest-paid CEOs made last year:

1. IAC/InterActiveCorp's Diller got $295 million.

2. Capital One Financial (COF, news, msgs) CEO Richard Fairbank got $249 million by cashing in options.

3. Nabors Industries (NBR, news, msgs) CEO Eugene Isenberg got $203 million in pay, bonus, cashed-in options and restricted stock.

4. Yahoo (YHOO, news, msgs) CEO Terry Semel pocketed $183 million in pay, cashed-in options and restricted stock.

5. KB Home (KBH, news, msgs) chief Bruce Karaz got $156 million in pay, bonus, cashed-in options, restricted stock and incentive grants.

If these kinds of giveaways to CEOs tick you off, you don't have to just sit and fume about it.
Congress, regulators and companies themselves are considering a slate of reforms that would go a long way to correct the problem -- and you can take several concrete steps to support these changes.

Here's a list of whom to contact (click a name to send an e-mail):
SEC Chairman Christopher Cox's office. (Click the name to send an e-mail to Cox.)
Your representatives in the U.S. House and Senate.

Rep. Barney Frank, D-Mass., who will chair the House Committee on Financial Services, and Sen. Chris Dodd, D-Conn., who will head up the Senate Committee on Banking, Housing and Urban Affairs next year. (Please, e-mail MSN Money a copy of whatever you send to any member of Congress.)

And here's my quick list of reforms that you can try and do something about:

Boot the directors The real culprits behind enormous salary increases for CEOs are boards that approve these egregious pay packages in the first place. So it's important to vote against board members on pay committees that let these bloated pay packages through. "Unless you boot off directors who agree to these outrageous pay plans, there is no way to stop it," says Nell Minow of the Corporate Library.

"Don't just discipline board members, change them," says Patrick McGurn, special counsel for Institutional Shareholder Services. Shareholders may soon get more power to do so -- but you'll need to support reform efforts aimed at getting greater "proxy access" for shareholders, as the reform effort is called.

The Securities and Exchange Commission recently sided with a company that rejected a shareholder proposal which would have given shareholders holding more than 3% of its shares the right to nominate board candidates. But a federal court has told the SEC to reconsider its ruling, which may give shareholders more say in policing boards that play too loose with corporate checkbooks.

Get a clearer view What you can do -- Step #1: Contact the SEC and tell them you support the rights of shareholders to use the corporate proxy machine to propose changes in the rules on how board members are elected. "This should be on top of the list," says McGurn. Tell your representatives in Congress, too, since they have the power to influence SEC policy. The case involves American International Group (AIG, news, msgs) and the American Federation of State, County and Municipal Employees (AFSCME), which wants the bylaws change.
The good news is that it will be much easier to see how much executives make come springtime, when companies file proxy materials -- the documents containing details of executive pay.
The SEC recently adopted rules calling for better clarity, and pay experts are expecting some big surprises. "That in and of itself will have a chilling effect," says Minow, "although these people seem incapable of embarrassment."

But there's still room for improvement in disclosure. One shortcoming is that the SEC doesn't require companies to reveal the targets (such as company profits, revenues, etc.) executives have to hit to receive performance-based pay. This is a problem, since options often account for the lion's share of bloated pay packages.

Outgoing UnitedHealth Group (UNH, news, msgs) CEO William McGuire racked up an awesome $1.6 billion worth of exercisable options and $174.9 million out-of-the-money options during his tenure at the helm. That's on top of a salary, bonus and "other pay" package worth $10.6 million in 2005 alone, according to the Corporate Library.

Unmask the consultants What you can do -- Step #2: Tell the regulators and your representatives that you want more detail about what targets CEOs have to hit to increase the size of their paychecks.

Companies hire compensation consultants to help determine how much to pay their executives. The question is whether that advice is objective. For instance, those same consultants try to get business from the companies to advise on their employees' retirement plans. If they give the CEO a healthy pay raise, does that help them land or keep other consulting jobs?
What you can do -- Step #3: Ask the SEC and your representatives to require disclosure of all relationships between compensation consultants and the companies whose executive pay packages they design.

Fantasy shareholding If you hold just $2,000 worth of a company's stock for over a year, you have the right to submit votes to fellow shareholders. "For $2,000 you get a seat at the table with the board of directors and the CEO," says McGurn. "It's like fantasy baseball."

You can't force companies to ask shareholders to vote on anything (see Step #1). One area that's strictly off limits: votes that would constrain management on day-to-day business decisions. (That's fair enough. You wouldn't want shareholders micromanaging companies.)
But you can get proposals that ask shareholders to vote on several changes that can improve the quality of boards and help reign in executive pay, says Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

For several years, for example, Bristol-Myers Squibb (BMY, news, msgs) shareholder Dundas Flaherty filed proposals that asked shareholders if they wanted the office of chairman and chief executive to be split. Having the same person in both roles, some critics say, compromises board independence. About 40% of shareholders approved the proposal each time, says Cornish Hitchcock, a Washington D.C.-based attorney who helped Flaherty. In 2005, Bristol-Myers Squibb agreed to split the jobs.

What you can do -- Step # 4: As a shareholder, ask companies to put pay-related reforms to a vote -- or at least be sure to look for pay-related proposals from other activist shareholders and vote "yes."

For example, watch for proposals asking you to vote against excessive golden parachutes, excessive pay packages and the compensation committee reports that justify them, says Hitchcock, who also advises Amalgamated Bank's LongView index funds on how to use shareholder proposals.

Elson says proposals that require majority voting for directors are crucial. This change means that directors have to get a majority of all votes cast to win -- not just the largest number among several candidates. This makes it harder for boards and managers to get a rubber stamp on their favored candidates when the broader shareholder base is apathetic.
There are, of course, other steps to take. And anytime you go head to head with a corporation, it can be an uphill fight. But with the political winds swinging toward shareholders' favor, now's the time to give it a try.

At the time of publication, Michael Brush did not own or control shares of companies mentioned in this column.