October 28, 2011
The Soviet Union regularly held elections for office in which the Communist Party would win well over 99 percent of the vote. No serious person would have concluded that the Soviet leadership enjoyed the overwhelming support of its people. The elections were a joke, with no opposition allowed to participate or even to publicly criticize the government.
In the same vein, shareholder votes on CEO compensation should not impress anyone as a serious expression of shareholder sentiment. The votes that are cast are non-binding. It is also very difficult to anyone to organize among shareholders. There is very little incentive to devote the time and resources to do serious organizing for a vote that is non-binding. The vast majority of shareholders do not even bother to vote.
This is why it is seriously misleading of the Huffington Post to tell readers in an article headline:
“CEOs compensated correctly, vast majority of shareholders say.”
It is possible that most shareholders do approve of compensation packages that often hand failed CEOs tens of millions of dollars, just as it is possible that most people in the Soviet Union actually did support their leaders. However, in both cases, the rigged elections cannot be taken as evidence to support the position.
[Thanks to James Pilant for the tip.]
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