Board independence and executive compensation are issues experiencing more and more media attention lately, but what is being done to correct the problems? While regulators are working to enact new laws, these take a long time to enact and enforce. As a result, many activist and passivist investors have voiced their concerns recently (which led to the current media blitz). One of the most important instances occured on October 23rd when a coalition of pension funds with over $850 billion under management sent out letters to the top 25 U.S. companies by market capitalization expressing concern over executive compensation. In particular, the funds voiced their concern over the independence of the board committees that determine executive pay within a company. Often times these compensation committees also work closely with management in other areas; such relationships could lead to the inflation of executive pay at the expense of shareholders. How does this occur? In the end, these committees are often failing to prevent abuse of Regulation 162(m). This abuse is characterized by performance goals (developed by these compensation committees) containing vague vocabulary designed to maximize the liklihood of meeting goals. When these goals are achieved, bonuses are granted to executives (and they're even deductible!). The pension fund coalition hopes that these letters will remind investors to be mindful of executive pay levels as well as encourage companies and regulators to work to remove any conflicts of interest that may exist between management and shareholders. In the end, it may be shareholders that may have to take action through the use of publicity and proxy threats. After all, it was regulators that passed Reg 162(m) in an attempt to combat excessive compensation in the first place!