A Cure for the Pay Hysteria?

Why is Aflac, a company fronted by a duck, taking the lead on "say on pay" – i.e., giving its shareholders a so-called advisory vote on the CEO's pay package?

Behind the duck is the man, Dan Amos, CEO of the insurance company. He kindly consents to field our cynical speculations about the motives behind his decision to make his company conspicuous in the politics of CEO pay.

Because he's trying to curry favor with the corporate governance crowd and allay occasional grumbling about the role of people with his last name in the company? After all, he's the son and nephew of Aflac's founders, and his own son is talked about as a potential successor.

Nope, he says. "I've worked too hard to hand this company over to somebody who can't handle it." His son will have the same chance as anybody else someday to win the job.

Well, then, because he's desperate to become famous for something besides the duck? Nope. "The more people think about the duck, the more insurance we sell. . . . I'm thrilled" about having the duck as his greatest legacy, he says.

Because he's some kind of crank on the subject of CEO pay? Nope. "Frankly, I don't care what anybody else does. What a CEO makes shouldn't be important to anybody but the owners of the company. It's not a public issue."

Media outlets have fallen all over themselves since Aflac's adoption of "say on pay," but they seldom find room to include Mr. Amos's actual views on executive compensation. For one thing, he doesn't think every company should be required by law to adopt "say on pay." He took up the idea himself only because it was brought to him by activist investor shop Boston Common Asset Management, and then only because he figured more "transparency" might improve the atmospherics around executive compensation and help "calm down" public neuralgia.

He doesn't share the standard media view – impossible though it may be to reconcile with evidence of the generally competitive capital markets that corporations must answer to – that towering CEO pay is the product of corrupt bargains with crony boards. He sees it as a market phenomenon. "You don't want a discount CEO. When you look at the billions of dollars that a corporation brings in, it doesn't really matter what the CEO makes. What matters is whether he performs."

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Mr. Jenkins edits "Political Diary," the editorial page's daily email newsletter with commentary, analysis and gossip on Washington, D.C. and state politics. With John Fund. Subscribe at www.politicaldiary.com.

Mr. Amos, for the record, receives a salary and stock options, although any shareholder who bothers to wade through the proxy materials will probably find most arresting the fact that he owns nearly 10 million shares. The company notes that over his 18 years the company has returned 3867% to shareholders.

"I figured this out the other day," he says. "We're making a million dollars an hour in profit."

He says he gets the market wage, though he notes his company would have to pay much more, with lots of downside protection, if it had hired an outsider. "The reason you see these kinds of [golden parachute] deals and contracts is they won't come otherwise, especially with all the risks today."

Sadly, while Mr. Amos will discuss his own pay, he won't discuss Carl Edwards's, the Nascar driver who sports the Aflac logo while circling America's speedways. Mr. Amos does allow that the boyish, back-flipping and preternaturally disciplined Mr. Edwards has shown himself a shrewd and maximizing manager of his own rapidly rising market value.

Perhaps the freakiest thing about Aflac, a company founded 53 years ago in Columbus, Ga., is that 70% of its revenue and a corresponding share of its assets are in Japan. The history has been told many times of how Uncle John visited Osaka for the 1970 World's Fair and saw the locals festooned in surgical masks against flu germs. He decided then and there they would make good customers for supplementary health insurance to cover what Japan's public health system scrimps on.

The latest Mr. Amos, when he took over, actually sold Aflac's businesses in eight other countries in order to raise money for a big advertising push in the U.S. and Japan. That was in 1990 – his first big investment in branding, which proved a modest failure and led, in 1999, to the duck. He says the advertising agency that came up with the idea bet he wouldn't accept it, but he did.

He gives credit where credit is due, to New York's Kaplan Thaler Group, but adds: "I will say one thing: I was never satisfied with our level of success with our advertising and kept pushing for something bold and new."

History will record that the duck performed a marketing near-miracle, turning a little known company into a name that comes to every lip, even if most are hazy on what Aflac does (it sells health and injury insurance mostly through employers, benefiting from the tax favoritism for employer-provided insurance). Aflac's marketing triumph inevitably has prompted other companies to ask: What does our name sound like? But it's hard to extract a cute mascot from "State Farm" or "Nationwide," though "AIG" could perhaps borrow the figure from an Edvard Munch painting.

So far, only fellow insurer Geico has committed the sincerest form of advertising flattery, with its spokes-gecko. As for Mr. Amos, he will be famous in the business schools long after he's retired, though probably not for "say on pay."