Bob Tippee
Toppled companies and disclosures of book-cooking have intensified scrutiny of the often stratospheric compensation of corporate chief executives.
Top managers with lavish stock-performance incentives have misled shareholders, jeopardized and in some cases ruined companies, and weakened confidence in corporate governance. The public is outraged?especially that significant and growing part of the public that owns stock.
A backlash is brewing among politicians, regulators, labor groups, and shareholder advocates. Some of it will be unjust.
Not all chief executives have played fast and loose with financial reports, evaded taxes, traded stock on insider information, or kited bonuses just before companies failed, which are among accusations recently leveled against various honchos.
Inevitably, the righteous will suffer for the sins of the unrighteous. But does the business ruling class ever really suffer?
Top-ranking annual compensation packages for chief executives in the US now reach well into the hundreds of millions of dollars.
The AFL-CIO, which urges its members to resist what it calls "runaway" executive pay, says, "In 2001, the average CEO of a major company received $15.5 million in total compensation."
Yet the problem isn't the quantity of dollars, high as it is. Most chief executives earn every penny they receive. Who's to say the profitable management of a major corporation doesn't warrant compensation in the tens of millions of dollars, maybe more, when it's done legally and without hurting people?
The problem is that compensation systems at some point quit distinguishing between the rare managers who can do that consistently and charmers adept mostly at stock-price manipulation.
Contributing to this failure is well-documented coziness between board-level compensation committees and top executives. Pressure from stock owners and regulators for greater independence of board members is likely.
So is a change in the ability of companies to give executives stock options without affecting earnings.
Both changes are appropriate. They will help repair the damaged integrity of business and restore public and investor confidence. The sooner they happen the better.
Chief executives won't find life any easier because of them. But easy living isn't part of the chief-executive job description.
(Online June 21, 2002; author's e-mail: [email protected])