The Effects of Restricting Executive Pay
In March 2004, the pension plan of the Utility Workers Union of America proposed changing the corporate bylaws of Dominion Resources, Inc., so that in the future, management had to get shareholder approval of executive pay exceeding $1 million, as well as detailed information about the firm's executive incentive plans. Many unions-most of which have pension funds with huge investments in U.S. companies-are taking similar steps. They point out that, usually, under Internal Revenue Service regulations, corporations can't deduct more than $1 million in pay for any of a company's top five paid executives.
Under the new rules the unions are pushing, boards of directors will no longer be able to approve executive pay above $1 million; instead, shareholders would have to vote on it. In terms of effectively running a company, what do you think are the pros and cons of the unions' recommendations?