Just barking at the fat cats

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ONCE AGAIN, Bill Clinton is spending a lot of time explaining himself. In recent days he has moved to shore up faltering congressional support for the centrepiece of his economic programme - a big deficit reduction initiative based on massive tax increases of dollars 247bn over five years. In Congress, the consensus is that President Clinton has not done a good job of selling his programme.

Simultaneously, Mr Clinton is wooing some once-strong business supporters who believe he has lost his policy moorings. The view from corporate boardrooms is that deficit reduction should be based on much steeper spending cuts than the dollars 97bn over five years proposed by the administration. Additionally, corporate chieftains think that Mr Clinton is trying to do too much. They want better performance in terms of setting priorities.

Only a little over 100 days into his presidency, Mr Clinton is thus faced with a formidible communications challenge. At a recent meeting of House Democrats, Mr Clinton was urged to sell his tax programme to the American people by explaining that the bulk of it would hit the very rich. Without this effort, and assurances that spending cuts would be real, he faced a Democrat revolt. On the other hand, Mr Clinton also needs business support to pass the programme, and these supporters are among the very rich. Can Mr Clinton have it both ways: using a populist 'soak the rich' message to sell the programme while also bringing along corporate CEOs?

The White House response to one part of the problem was to announce last week a big effort to improve relations with the corporate community. John Bryan of Sara Lee, Stephen Wolf of UAL, Harold Poling of Ford, Robert Winters of Prudential Insurance and John Ong of B F Goodrich were among the first to be summoned. All rank among the most highly paid US executives. From now on, there will be regular White House meetings between Mr Clinton and the corporate chieftains he courts.

This same strategy worked very well during the election, when the Clinton campaign surprised incumbent Republicans by producing a long list of corporate executives who supported his candidacy. Whether it will work a second time, when deficit reduction and health care reform are now front and centre, is far from clear. Even if Mr Clinton reins in House and Senate Democrat defectors and succeeds in restoring business support, he faces a tough choice on populism.

In an unfortunate stroke of bad timing, new reports have just been released which reveal that executive pay, despite all talk of reform, continues to leap ahead - by an estimated 56 per cent last year, according to a Business Week survey. In another study, it was revealed that CEOs try to hide their compensation in stock options that until very recently did not have to be charged against company earnings. For example, Michael Eisner, the chairman of Walt Disney, realised a record dollars 197m stock-option gain late last year. A recent decision by the Financial Accounting Standards Board requires companies to charge these options against earnings, but this will not take effect for three years. Meanwhile, this form of compensation continues to grow along with the spread between what the average CEO makes in relation to the factory worker. In the United States last year, the average CEO made 157 times a factory worker's pay.

So far, Mr Clinton has held back from attacking the rich and highly paid corporate executives while preaching a message of austerity for all. He even tried to make amends last week to the middle class by promising them a tax reduction in some future halcyon period. But with hard tax times fast approaching, there is increased grumbling among congressional constituencies over highly paid executives who benefit from special privileges. More demands are made at both the grassroots level and within the administration itself for stricter corporate governance.

During the campaign, Mr Clinton emphasised themes of 'tax the rich' and 'good corporate governance' without getting into executive-bashing. As middle-income worker compensation continues to decline in relation to top executive compensation, there are bound to be increased calls for more government intervention. This was true even in a Republican Administration, when President Bush supported the efforts of Richard Breedon, his appointee as chairman of the US Securities & Exchange Commission, to rein in the most egregious forms of corporate pay greed.

The danger is that the message can be taken too far. Government really has no place in corporate decision-taking, including compensation programmes for top executives. It can, however, set standards so that shareholders have an adequate say in corporate performance and that directors can be a counterbalancing force to greedy, under-performing managements. In the end, performance should be the standard in terms of growth, market share and total shareholder return in relation to executive pay.