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Frank Urges Execs to Join With Washington to Curb Income Gap

October 18, 2007
Related Topics: Career Development, Compensation Design and Communication, Employee Career Development, Retention, Latest News
Public companies wishing to deflect rising shareholder demands for more rights on everything from executive pay to nominating directors need to join with Washington lawmakers to “diminish the excessive inequality that exists in society today,” said Rep. Barney Frank, D-Massachusetts and chairman of the House Financial Services Committee, in a speech Tuesday, October 16, at the annual National Association of Corporate Directors conference in Washington.

“The distractions in governance would be less if people were less unhappy,” Frank said, arguing that much of the growing shareholder activism is a result of the nation’s rapidly expanding income disparity, in which the pay of top executives continues to soar—even when their companies fail—while income for most workers has declined.

“There is anger, and it’s exacerbated when people are told how well things are going,” Frank said, citing a New York Times study that found real income for 95 percent of Americans had decreased between 2000 and 2005. He added, however, that “the compensation issue is not simply a matter of envy; there are some real disconnects.”

Frank points to the recent pay packages of Robert Nardelli, former CEO of Home Depot and new CEO of Chrysler, and Angelo Mozilo, the embattled chief of Countrywide Financial, as examples of “extraordinarily egregious cases of people being compensated in ways that are hard to justify.”

Although Frank said that a certain amount of inequality is necessary in a capitalist economy, he added that “too much inequality can become counterproductive.” Until the gap between the haves and have-nots is narrowed, directors will “have to learn to live with criticism,” he said.

Meanwhile, Frank says the widely held notion of just a year ago that the markets are perhaps overregulated has changed in the wake of last summer’s credit crunch. Just look, he said, at the “unusual degree of intervention” by the Treasury Department on Monday, October 15, to push Citigroup, Bank of America and JPMorgan Chase to create a $100 billion rescue fund to help bail out the troubled global credit markets.

While not specifically a regulatory act, Frank said the idea that the banks acted voluntarily is “fictitious.”

Filed by Jeff Nash of Financial Week, a sister publication of Workforce Management. To comment, e-mail

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