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Will 'Say on Pay' Become the New Normal for CEOs?

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (TheStreet) -- With U.S. stocks recently suffering their worst quarter since 2007, European markets in turmoil over Greek debt and unemployment continuing at near-record lows, it's not an easy time to be a CEO.

It's tough to turn quarter-upon-quarter profits in hard times, perhaps tougher still to inspire overextended employees to continually improve efficiency and to retain the confidence of jittery board members. One could argue that corporate CEOs are finally being forced to earn their massive salaries. So, it's ironic that they may be less likely than ever to get them, thanks to a provision in the new Dodd-Frank financial overhaul legislation.

The problem, of course, is that perceived past abuses, especially in the banking sector, triggered massive Congressional and public outrage. In March of 2009, when the stock market hit bottom in the wake of the subprime mortgage debacle, American International Group (AIG) revealed that it owed more than $165 million in bonuses to employees in the unit that caused the company's collapse. Public resentment flared, politicians responded, and a provision was added to the Dodd-Frank Act that gave shareholders a new "say on pay" over executive compensation.

The public's outrage was not entirely unjustified, and AIG was far from alone. Some CEO compensation packages are so bloated as to apparently defy common sense. For example, The Wall Street Journal reported in March of this year that the top six executives at Fannie Mae and Freddie Mac earned $35 million in 2009 and 2010, citing a report from the inspector general of the Federal Housing Finance Agency. But Fannie and Freddie executives could hardly claim to have a stellar record of success; the two mortgage giants had been taken over by the federal government in 2008, costing American taxpayers $134 billion.

The FHFA stated that executive compensation packages were 40% lower than before the takeover, but the report criticized the government for failing to consider comparable public-sector wages or to independently verify whether the mortgage giants had adequately met certain performance-related compensation targets before approving the generous compensation packages.

Fannie and Freddie aren't alone. In September, a bankruptcy judge authorized Borders Group (BGP) to make severance payments of $125,000 each -- the maximum payment allowed under the Bankruptcy Code -- to four company executives, including Borders' former CEO, Mike Edwards. That may not seem like much compared to other CEOs' compensation packages, but it was paid after Borders had been slated for liquidation. To the average American worker, paying executives a severance package as a reward for tanking a company defies even the most generous logic.

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