Proponents of institutional investor activism constantly tell us that activists will not micro-manage their portfolio companies. Well, that's just total bullsh*t. Case in point:
Activist investors are turning up the heat on companies that give relocating executives generous benefits to cover the cost of their depressed home values. ...
The root problem: The protracted housing downturn in the U.S. is colliding with a rebound in management hiring. So more employers help pick up the tab for relocated executives losing money on their home sales.
Home-loss provisions are a hot-button issue with our institutional clients," explains Patrick McGurn, special counsel for ISS. "We have been seeing extraordinary relocation payments being made to bail out transferred executives."
One has long thought that ISS was too powerful, but at least one thought it was sane. One now sees that one was wrong.
In the first place, isn't the point of executive compensation to attract and retain competent executives? If relocation reimbursements help do that, isn't that a good thing?
Proponents defend the perk as necessary for businesses to attract and keep star players. "They simply need those executives to move," says James D.C. Barrall, head of the global executive compensation and benefits practice at Latham & Watkins LLP.
In the second place, isn't what really matters not specific items of pay but rather the total effect of pay has on executive incentives? Marty Robins writes that:
I’m a lot more concerned with management and board performance, as it translates into company performance, than I am with pay per se. To the extent pay is relevant, this should be on account of either its overall incentive effects regarding performance or whether it has any connection to “market value” for the position in question. Simply protesting this (or any individual) item of someone’s pay package has nothing to do with company performance. It makes no sense to address any individual line item for someone, without addressing their aggregate pay and assessing its implications and level.
Money being fungible makes it pointless and counterproductive to protest reimbursement for a home sale loss, if the beneficiary’s overall package is well structured for incentive purposes and in line with the market. If a corresponding increase in salary or bonus would not prompt shareholder protest, why should a protest result from the name of the payment? Similarly, if there is good reason to protest total compensation, the rationale still exists, notwithstanding the formal designation of a portion of it. Good performance relative to total pay should not lose its luster because of a home sale provision … and vice versa!
Finally, self-appointed shareholder spokespersons like Lucian Bebchuk, Nell Minow, Robert Monks, and their ilk have told us over and over that their institutional clients will not seek to micromanage portfolio firms. And now we see that that's bullsh*t. If picking nits like home relocation reimbursement isn't micromanagement, I don't know what is.
For more on the case against shareholder activism, see my articles Shareholder Activism and Institutional Investors and The Case for Limited Shareholder Voting Rights.
