Wednesday, January 10, 2007
Putting The Squeeze On Executive Pay
The article at the link below is a brief and impressionistic overview of emerging factors that might make it a little harder for CEOs to earn inflated incomes in the future. These factors include:
1) Laws passed in the wake of the Enron scandal that make corporate boards more likely to scrutinize the recommendations of CEOs.
2) The stated intention of many in the newly elected Democratic Congress to fight income inequality between the rich and the rest of us.
3) Rising opposition of investors to CEO pay that has become so large that it typically consumes more than 10 percent of the profits. The top five CEOs in 2000 through 2002, for example, consumed 12.8 percent, while their counterparts took home just 5 percent only a decade before.
4) Federal rules requiring complete and straighforward disclosure of executive compensation.
According to the article, compensation experts generally have one of two opinions about CEO pay, or something of both opinions combined. One group believes that CEO pay is just large, regardless of any possible mitigating factors, and that the gap in pay between executives and the vast majority of other workers has a potentially destabilizing effect on society. The other group criticizes CEO pay only if it is disproportionate to performance, as in the recent case of Bob Nardelli and his 210 million dollar severance package.
Many experts believe that simply disclosing the amount of CEO compensation is not enough. The sources and the terms of that compensation should be disclosed and examined as well, as these may provide CEOs with "perverse incentives to cook the books". They also agree that shareholders should be given greater power to replace corporate boards if they award compensation irresponsibly.
"America's CEO pay may soon face squeeze" from the Christian Science Monitor