It had to happen. At some point, the CEO pay critics second-guessing the board of directors would lead a CEO to say “Screw it,” and leave the shareholders to deal with the aftermath.
Yesterday, Aviva’s shareholders, saw the departure of Andrew Moss, their CEO, after his pay package was voted down. While it’s difficult to interpret any given Say on Pay vote, it’s a fair assumption that these votes respond to headline news about a company. In the case of Aviva, the headline appeared to be “Insurer performing badly; CEO pay goes up.” So, here is what the shareholders have wrought:
1. While the stock price jumped on news of Moss’s departure, it quickly came back down to earth, then continued sinking as the realization set in of who they might get to succeed him. The stock price is now six percent below where it started just before Moss’s announcement. ...
By the way, the stock drop has cost Aviva’s shareholders over $500 million, even accounting for the general slump in the market over the last couple of days. The shareholder’s putative complaint was that the board had agreed to pay Mr. Moss a $1.86 million bonus, on top of his $1.55 million salary. So, it appears that the shareholders, in their trading capacity, have penalized the company with a half billion dollar CEO changeover cost because they believed, in their proxy voting capacity, that two million dollars was too much to pay their CEO in a bonus.
Go read the whole thing. It is devastating critique of say on pay, which remains one of the dumbest ideas to come along in corporate governance in years.
On say on pay, see Bainbridge, Stephen M., Remarks on Say on Pay: An Unjustified Incursion on Director Authority. UCLA School of Law, Law-Econ Research Paper No. 08-06. Available at SSRN: http://ssrn.com/abstract=1101688