Fixing CEO pay won't be easy 

Shareholder efforts to limit executive compensation have failed so far, but they gain momentum each year.

The corporate boards at Coke, Delta and Home Depot all rejected proposals last fall to restrict excessive pay and to strengthen ties between company performance and CEO compensation. But the resolutions got more votes this year than in 2004, and more votes in 2004 than the year before.

Home Depot shareholders came the closest to victory when more than investors representing more than half the company's shares voted to limit golden parachutes, the windfall gifts that companies often shower upon departing executives. The board, which is comprised largely of corporate executives who benefit from such policies at their own companies, predictably shot down the nonbinding resolution. In its proxy statement, executives gave this reason: The resolution would "choke the company's ability to attract, motivate and retain senior leadership."

The company's rationale is the standard line in corporate America. But those arguments may have more to do with the self-interested ideology of high-rolling business leaders than they do with good management.

"According to the theory, there are only a very few managers who are capable of being a CEO at a top ranking American company, and therefore they set it up so that they are in a position of power when it comes to negotiating pay," says Paul Hodgson, senior research associate on executive compensation at the Corporate Library, an independent consulting and research group. "And then they can ask for the sky."

A big part of the problem is that executives don't get much resistance when they make astronomical requests because the board committees that devise compensation packages are mostly made up of other CEOs and high-ranking executives. A "scratch my back and I'll scratch yours" mentality has allowed executive pay to inch up steadily since the 1970s.

But the economic rush leading up to the dot-com boom - and then bust - sent CEO pay to new heights in the 1990s.

Congress tried to do something about it in the early 1990s - or at least made a show of doing something about it. Lawmakers enacted a change to the tax law, which penalized salaries of more than $1 million, Hodgson says. "You could pay in excess of that as long as it was performance related. Well, [CEOs] just made sure that everything in excess of that capped pay was performance related."

Executives got around the cap with restricted and unrestricted stock options and bonuses. Coke's board even went so far - after a bad year for the company - as to lower performance targets for then-CEO Douglas Daft so he could get more stock.

Unions have long complained about the growing gulf in pay between average Americans and top executives. But these days, investors are the only critics who anyone seems to be listening to - and they're not making much headway, either.

"They certainly are raising awareness amongst boards and board members," says Hodgson. "It shows dissatisfaction with [how] the levels of CEO compensation is growing."

Such efforts offer little more than bad publicity - and publicity executives and board members seem willing to bear it in exchange for fat wallets.

The sad thing is that many corporate governance experts say excessive executive pay tends to harm a corporation's financial performance. At the most obvious level, Hodgson says, CEO pay controversies - like those involving Coke's Daft and Delta's Leo Mullin - harm worker morale, and low morale affects businesses in multiple ways.

"Companies with modest worker pay and top management pay differentials perform better both in terms of stock price and total stockholder return than companies with the widest differentials," he says.

michael.wall@creativeloafing.comFight the power

If you want to find out how much a CEO is making, scroll down to your company at The AFL-CIO's CEO compensation site tracks almost every major public company and its CEO's pay.

If you want to get news about CEO pay and shareholder resolutions, go to The Corporate Library is an independent research and consulting firm on corporate governance.

If you want to see which politicians and companies are in bed together, check out The Center for Responsive Politics lists campaign contributions by political action committee, industry, and lots of other ways.


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