Friday, April 07, 2006

CEO pay in the news

CEO pay is back in the news (does it ever really leave?) with several stories in the last few days. Most articles have been centering on calls for more disclosure.

First the issue: CEO pay increases much faster than the average worker's pay AND this is not due to market forces but a "stacked deck". While the first is true, there well may be reasons for it (technology, flatter levels of management, increased importance of CEOs, etc), there is growing evidence of the latter as well.

"In a preliminary analysis of executive compensation, Corporate Library senior research associate Paul Hodgson found that total CEO compensation rose a median of 11.3 percent in fiscal year 2005, far below the 30.2 percent growth rate in last year's survey.

Total CEO compensation includes salary, bonus, perquisites, long-term incentive payouts, the value of realized stock options and restricted stock. Just in terms of CEOs' base salary, the average increase was 8.5 percent, still multiples above that for workers, for whom the average pay increase in 2005 was 3.4 percent, according to Hewitt Associates."

From the MercuryNews:

"Some experts say that rising pay is the fair and square result of a free market where companies compete for a manager's services. But while executives get to fend for themselves at the bargaining table, irate investors can't get their point across to the people representing them, from the board of directors to mutual fund managers."

The paper they are speaking of is cited at CNNMoney and is available at the Corporate Library (which has an annoying habit of charging $100 for its papers so get there before they start charging! ;).

From the The Sun Herald (Biloxi) A chance to curb excessive CEO pay:
"CEO compensation varies dramatically, even among similar companies in the same industry. Indeed, you often find a CEO at a company whose stock is doing well, such as Lowe's, making less than a CEO at a company that's doing badly, such as Home Depot. That's the opposite of the result you'd expect in an efficient marketplace.

Fixing this problem is a tall order that will require corporate-governance changes to assure that directors better represent shareholders' interests."
NY Times DealBook blog:
"we went to the Securities and Exchange Commission’s Web site and picked out some of the more incendiary comments from the public responses to the rule, which would force companies to spell out in greater detail the perks given to certain top executives and directors"
Obviously this issue will never go away, but I will definitely join hte call for more disclosure. Letting everyone see the playing field is a necessary condition for letting markets work.

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