The revolution may not be televised, but it's very real.
A version of this article originally appeared on our US site, Fool.com.
Finally, there's hope to right the wrongs in our dysfunctional marketplace; the deprogramming has begun. Investors of all stripes have woken up, and they're voting against unreasonable CEO pay packages that for years have too often rewarded mediocrity or failure in corporate leadership.
Sorry, managements and boards, but spring has sprung with a vengeance
News headlines are touting a "shareholder spring" as investors remember they're part owners of public companies. Many are actively voting their shares to criticise the CEO pay abuse that's gone unchecked for decades now.
Shareholder rebukes just keep on coming; so far in these early innings, eight American companies have experienced say-on-pay defeats. Citigroup (NYSE: C.US) shareholders' extremely high-profile rejection of Vikram Pandit's pay was one of the first signs that even major companies are in the crosshairs of shareholder dissatisfaction with pay compared to performance.
We're still in the early stages of this revolution, and it should be interesting to watch some of the responses to these shareholder smackdowns. Maybe Citigroup's management and board are a bit dazed and confused right now, but over here, Aviva's (LSE: AV) CEO Andrew Moss took his ball and went home after shareholders voted against his pay package. He up and resigned.
The truth is, an increasing number of high-profile say-on-pay failures should show what these folks are truly made of. Good leaders and boards will listen to shareholder criticism and search their souls to do the right thing by shareholders, not to mention employees and overall business health.
Back in America, Sprint Nextel's (NYSE: S.US) CEO Dan Hesse voluntarily relinquished $3.5 million in 2012 pay after "feedback from some shareholders" about his pay. Last year, Sprint had not taken the costs related to adding Apple's (NASDAQ: AAPL.US) iPhone to its network into account in bonus calculations.
In other words, any of these folks can voluntarily reduce their own pay at any time. These days, more humble gestures and just behaviour are sorely needed.
Debunking bogus claims about the "market"
Many investors still defend generalised high CEO pay as a "market-based" factor, but they've been duped. A healthy marketplace rewards success and penalises failure, and many CEOs have been paid millions upon millions just for showing up and bearing the "CEO" title, regardless of the true performance of the companies they've led.
Government bailouts during the financial crisis didn't help matters, either. Protecting those companies and their leaders from abject failure taught no lessons. The fact that some investors defended the concept of bonuses for AIG's (NYSE: AIG.US) top brass following its brush with failure showed that the brainwashing was stubborn. The popular defence that the company's executives still deserved supposedly "market-based" pay flew in the face of the reality: AIG would have failed without its taxpayer bailout.
The notion that boards populated with interlocking directors who happen to be other CEOs and who manipulated peer groups to boost everybody's pay were somehow perfectly normal market-based mechanisms has been proven hogwash, too. For too long, too many investors bought that irrational line of thinking, and allowed their capital to be squandered on ineffective leaders exhibiting poor performance.
The market's figuring out what's unbearable
Fortunately, shareholders have finally shaken off the complacency that has allowed CEO pay to burgeon out of control for too long. Fortunately, many of the shareholders who have awakened are the big ones who had forgotten their responsibility to exhibit stewardship over the hard-earned capital of most average Americans.
In 2010, The Wall Street Journal quoted legendary Vanguard founder Jack Bogle: "Directors are asleep at the switch because mutual funds are asleep. If mutual funds got together and said, 'We're not going to stand for it anymore,' the world would change."
Check it out: the world is changing. Shareholders large and small are remembering that they have a say regarding what the market will bear. When it comes to huge pay for poor performance or even failure, it's looking like the market's simply not going to bear it any more.
Buffett buy signal! The billionaire investor has found an attractive large-cap right here in Britain! Discover what he bought and the price he paid in this special report -- "The One UK Share That Warren Buffett Loves" -- it's free.
Further investment opportunities:
