When asked how he justified making more money than then-President of the United States Herbert Hoover, Babe Ruth famously quipped that "What the hell has Hoover got to do with it? Besides, I had a better year than he did."
I frequently remind my corporation law students of that story when we talk about shareholder proposals under SEC Rule 14a-8 aimed at executive compensation. Why? Because shareholder gadflies love to offer proposals caping CEO pay at the level of (or some low multiple of) the salary of the US President. Here, for example, is an oldie but a goodie submitted to Bell South in 1995:
Resolved: The shareholders of BellSouth recommend that the Board of Directors institute a salary and compensation ceiling such that as to future employment contracts, no senior executive or director of the Company receive combined salary and other compensation which is more than two times the salary provided to the President of the United States," that is, no more than $ 400,000.
Reasons: There is no corporation which exceeds the size and complexity of the United States government of which the President is the chief executive officer. Even most government agencies exceed the size as measured by personnel and budget, of most private corporations. The President of the United States receives a salary of $ 200,000; even agency heads and members of Congress are paid only somewhat more than $ 100,000. The recommended ceiling is sufficient to motivate any person to do his best.
The duties of the President of the United States are not comparable to those of senior executive officers or directors (the President has a much more demanding job). While the President has many valuable compensations which may exceed those of company executives, we use the salary of the President only as a reference point for shareholders to consider as they evaluate this resolution.
These proposals are so popular with a certain subset of shareholder activists that there is an extensive body of SEC no action letters dealing with the question of whether a proposal capping CEO pay at 2 times that of the US President is excludible on grounds that is duplicative of a competing proposal to cap the CEO's pay at three times that figure.
It's always struck me as a great prank to play on CEOs. (Not that I endorse using the shareholder proposal rule to play pranks. That would be wrong. Very, very wrong.)
