Millionaires Really Do Oppose Swinish Pay – to Other Millionaires

It’s early to say whether the grousing will turn into a new policy. Maybe it’s just people blowing off steam after seeing their pay shrink thanks to the new executive salary-cap law.

Laurence "Larry" Fink, chairman and chief executive officer of Blackrock. May 17, 2016.
Justin Chin, Bloomberg

We have become inured to the man in the street who doesn’t earn much, moaning about the millions that executives make. We have become accustomed to managers rebutting that such gripes are populist tripe driven by envy of people who made it by virtue of talent and hard work. But now we’re seeing a new wrinkle in the public debate about executive pay: millionaires attacking millionaires over excessive pay and detachment from reality.

Has the solidarity enveloping top-executivedom started to crack?

One story making the rounds is about Steve Silberstein, who made his fortune from selling a high-tech company in 2001 and who has been on the attack against Larry Fink, CEO of Blackrock, the biggest investment management company in the world, with managed assets totaling some $4.5 trillion.

That’s no typo. The figure is $4.5 trillion, meaning $4,500 billion. Silberstein accuses Blackrock of failing in its duty to rein in corporate pay at the companies in which it invests, and adds that Fink himself is overpaid.

Reporting on the squabble between the super-rich, the Financial Times phrased things prettily, as it does, calling Silberstein a “thorn in the side of Blackrock.” Like others, Blackrock doesn’t critique executive pay packages at its investee companies, but blindly approves them (to be accurate, it voted in favor of the proposed pay packages in 97% of the cases from mid-2014 to mid-2015) – and Silberstein thinks that’s just wrong.

“I am sure [Blackrock] is able to find a few [examples of] outrageous pay practices,” the FT quotes Silberstein, who goes on to charge that Blackrock has “the worst voting record. Other [asset managers] find at least a few pay packages to object to.”

Social justice isn’t exactly Silberstein’s only motive – he’s a client and shareholder of Blackrock. As such, he submitted a shareholder proposal to Blackrock’s board of directors, asking to discuss the company’s policy towards its investee companies. As he puts it to the FT, Blackrock could get in trouble with regulators for breach of responsibility by unthinkingly accepting pay packages, ultimately costing Blackrock business and hurting its own share value.

No matter how outrageous, these pay awards get the yea, padding executive pockets instead of being shared with shareholders through dividends, Silberstein wrote, adding that he might stop using Blackrock’s money management services because other companies do better work in terms of corporate governance.

As for Larry Fink, he took home $26 million, no less, last year and Silberstein snarls that he is “passionate about people sticking their hands in the till pretty soon all the money in the economy will go to chief executives as they keep raising their own pay each year.” Fink’s pay package rose from $24 million to $26 million in a year while profits increased by 2%, Silberstein points out – when Fink votes on pay packages for everybody, he raises the average, which kicks up his own compensation even more.

Silberstein devoted 30 minutes, no less, at the shareholders assembly to his claims; he also presented a petition signed by 4,000 Blackrock customers.

The aura of money

Is this a sea change in the way institutional investors relate to executive pay packages at the companies they invest in?

I wouldn’t leap to conclusions. Silberstein’s proposals were all shot down, by a big majority. Only 4% of the shareholders supported them.

However, his criticism and struggle against executive pay are not the same as just another liberal yowl or pontification from the left side of the map. If millionaires are starting to talk about the pay taken home by other millionaires, it’s a new story.

He has made a lot of money, Silberstein says. “That has given me credibility. Look at Donald Trump.” Money gives people an aura of credibility, he says, and vows to fight on.

Israel has recently experienced something strikingly similar. After the Knesset passed a law capping pay in the financial system at 2.5 million shekels ($650,000) a year, some executives at institutional investors, which are companies that manage the public’s money, also began to say they would start opposing excessive pay packages. If they have to suffer lower pay themselves, they said, the delight should be shared.

It’s early to say whether the grousing will turn into a new policy, and where new pay limits at publicly-traded companies would be set. Maybe it’s just people blowing off steam after seeing their pay shrink thanks to the new law.

But it is definitely clear that the new winds of critique blowing in the United States and Israel are already affecting executives as they come to set their own pay. If you like, it’s a kind of social justice, even if it consists mainly of internal squabbling among the small clique of people who make more than 200,000 shekels a month.