It's good to be the king

http://www.jewishworldreview.com | Working people are having a tough time right now. The Bush administration recently proposed regulations that may result in the loss of overtime pay for as many as 8 million people. Median weekly pay for all Americans has dropped this year. Wages for young college graduates are also down. And the unemployment rate continues to rise, up to 6.4 percent in June.

I imagine that you are as concerned as I am about one category of employees, in particular: A group of employees that has had to steady the helms of corporations as investors lost trillions of dollars and corporate profits plummeted.

But it turns out our concern is misplaced. Chief executive officers have managed to mitigate their anxiety, stress and fear by maintaining their compensation levels. Studies of CEO pay done by BusinessWeek, Mercer Consulting and Pearl Myers &Partners all reveal that the median CEO pay actually increased last year.

And what happens when these corporate stalwarts lose their jobs? Again, no need for concern here. The average separation package amounts to $16 million for CEOs who leave their company.

Runaway CEO pay is a blight on corporate America. And not a single organization representing CEOs has taken even a modest step toward reforming CEO compensation. Not the Business Roundtable, not the Business Council. Only the Conference Board has had the guts to call for reform.

The Sarbanes-Oxley corporate reform law of last year didn't properly address compensation committees and the treatment of stock options. Paul Hodgson, senior research associate with the Corporate Library, says, "I was disappointed, I must admit, that the Sarbanes-Oxley Act didn't require all the members of compensation committees to be independent directors as well."

CEO compensation expert Bud Crystal agrees: "Ultimately, you have to blame the boards. Unfortunately, your standard issue board consists of 10 friends of the CEO, one token woman, one token minority, and 60 percent of the board members are CEOs of other companies, and they don't come to the table with a philosophical predisposition against high pay."

Corporate boards need to make sure that CEO pay is actually linked to performance. Hodgson recommends tying compensation to things like: "return on assets ... total stockholder return, or even earnings per share growth." He adds, "Most of those are more efficient signifiers of a company's performance than their stock growth or even income."

Securities and Exchange Commission Chairman Bill Donaldson is quickly becoming one of my heroes. The SEC has decided to require companies to seek shareholder approval before granting executive stock options. Excessive stock option grants, fueled by the lack of a requirement to count these options as an expense, have been pointed to as a contributory factor in the explosion of CEO compensation since the early 1990s.

CalPERS, the California Public Employees' Retirement System, says it will vote its shares based on rigorous compensation standards. Both CalPERS and TIAA-Cref, the teachers' retirement fund, have been voting against exorbitant pay packages at this year's proxy meetings.

Most other large pension funds and mutual funds haven't taken action for a simple reason. As Hodgson says, "A lot of them out there reward their CEOs in the same way."

The SEC, the Conference Board, CalPERS and a few others have taken the lead on the important issue of runaway CEO pay. It's past time that this issue was resolved. After the corporate scandals, the market crash and corporate reform legislation, there is absolutely no excuse for corporate executive suites to be dominated by greed. And there is no excuse for any board or institutional shareholder to tolerate it.

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