No one could accuse Robert Monks of not having chutzpah. In the first chapter of his recent book, Corpocracy: How CEOs and the Business Roundtable Hijacked the World’s Greatest Wealth Machine — And How to Get It Back, he describes how he once stood up at an Exxon shareholder meeting and accused Lee Raymond, who was then CEO and chairman, of essentially running the company like a dictatorship.

“And Mr. Chairman, you have less restraints on the exercise of power than any of the leaders of countries today,” he said at the 2003 meeting. “The scope of your power, Mr. Chairman, is truly imperial. You are an emperor.”

But Monks doesn’t stop there. On top of criticizing the executive power and pay of many Fortune 500 CEOs, he attacks compensation committees and consultants as being pawns to the CEOs they serve. He accuses the Business Roundtable, the coalition of CEOs of large corporations, as being a self-serving entity that is only out to protect the interests and pocketbooks of its members.

While another book about the excessive power and pay of today’s executives might not seem too exciting, Corpocracy is an important read for HR executives at public companies—if for no other reason than that it gives them a good playbook of what to expect next time they are put in a room with their companies’ shareholders.

Monks is the founder of Institutional Shareholder Services (now called RiskMetrics Group), which advises institutional investors on how to vote on shareholder proposals at the companies in which they invest. His stance, while extreme, sheds light on the growing discontent among shareholders about how public companies are run today—particularly with regard to executive compensation. [Click here to listen to an interview with Robert Monks. Link opens a new browser window.]

Shareholders want to know not only why companies are paying their CEOs so much, but what goes into the decision-making behind these pay levels. To foster smoother relations with shareholders, many companies are bringing in their heads of HR to talk to shareholders before proxy season to explain how they came up with theirnumbers. If you are one of these HR executives, Corpocracy is a must for you.

Each year, there are more and more shareholder proposals about executive compensation. Monks points out that in 1970, the average CEO earned less than 30 times the average wage of all production workers. Today, the average CEO makes 300 times the average worker’s pay.

“Between 1990-2005, the 10 highest paid U.S. CEOs brought home an aggregate of $11.7 billion in total compensation,” Monks says.

Monks believes, as many shareholders probably do, that CEOs pretty much set their own pay regardless of what the companies claim. What about the compensation committees? Monks thinks they are a ruse.

“Compensation committees are peopled by and large—and quite intentionally—with those directors most inclined to have a supportive view of CEO compensation,” he says.

This would probably include the HR executives on these committees, who more often than not report to the CEO. So if you are one of these HR executives, you had better be prepared to explain to shareholders why you are fit to be on the committee.

And if your justification for being involved with executive compensation is that you are actually just aiding a compensation consultant, which the company hired to assure independence and objectivity, that doesn’t quite cut it in Monks’ view. On this topic, he quotes Charles T. Munger, the former Berkshire Hathaway vice chairman and CEO of Wesco Financial, who once said of compensation consultants, “Some of the worst sinners are compensation consultants. I have always said that prostitution would be a step up for these people.”

Monks paints a dim picture of companies’ corporate governance practices overall. The only realistic way to address the situation, in his opinion, is for shareholders to rise up and demand more say in how executives are being paid.

To some extent that’s already happening. Last year a handful of companies, including Verizon Communications and Blockbuster, passed proposals that allow shareholders to give a nonbinding vote on executive pay packages.

And as regulators and shareholders become more vocal in their criticisms of how companies are paying their top executives, it’s only a matter of time before employees start asking questions. Particularly with all of the talk of recession, many workers already are asking why their CEOs are making so much when profits are down and layoffs
seem to be around the corner.

And that’s why even those HR managers who have nothing to do with executive compensation might want to read this book. Because when the whispering at the water cooler begins, HR had better be ready with a pretty good explanation.