When the chief executives of General Motors and Ford announced that they would take just $1 a year in salary if Congress bailed their companies out, I rolled my eyes. Not for a moment did that gesture make me feel better about the possibility of the automakers receiving welfare.
Who in their right mind thinks a chief executive earning a $1 a year is actually making a sacrifice?
Nobody.
Last year the chief executives of at least 32 firms took the symbolic salary of $1 a year, according to Equilar Inc., an executive compensation research firm.
We regular wage earners know darn well these guys will get stock options, benefits and perks that far exceed what most of us will earn in our lifetimes.
From 2006 to 2007, the median value of total stock holdings and accumulated retirement benefits for Fortune 500 chief executives increased 6.1 percent to $56.7 million from $53.4 million, Equilar found. These amounts include pension benefits, deferred compensation, outstanding stock option awards, unvested stock awards, and shares owned outright.
The issue of executive compensation has again become a hot-button issue as company after company continues to tank, taking the economy along with them. On a gut level, it just feels so morally wrong for executives to earn millions while shareholders and employees are suffering so badly.
Ideally, executive compensation should be set by the marketplace and not by government. Pay for performance is what we all expect on our jobs.
The harder you work or the more value you bring to your company, the more you deserve to be compensated.
That’s the ideal way to pay people. But we know that chief executives, at least those running major corporations, are different. There’s so much more at stake when they fail to do their jobs properly. Just look at the American auto industry. The executives who ran Chrysler, Ford and GM off the road are still getting compensated handsomely while begging for a bailout. Even if their companies go broke, the bigwigs will still get millions in compensation despite their mistakes.
But there’s some good that could be had from the current crisis in corporate America. When someone is pleading for a handout, you can get something in exchange for rescuing them. It would be idiotic if Congress didn’t take advantage of this crisis and find a way to better control the way chief executives and their immediate underlings are compensated.
If we now have an economy in which we can’t allow certain industries or companies to fail, then we need better governance over executive compensation. We need to place some checks and balances so that top executives aren’t allowed to run firms into the ground while enjoying outrageous pay packages no matter how their companies perform.
Perhaps one way is to focus more on the boards that approve executive pay. Let’s hold accountable the people responsible for granting the monstrous stock options, bonuses, golden parachutes and benefits.
Last year, companies in the S&P 500 index spent an average of more than $2 million on board compensation, according to preliminary findings of a director pay survey by the Corporate Library, an independent research firm. The median total compensation for individual directors of S&P 500 companies was just under $200,000.
Despite the economic downturn and a yearlong recession, the pay for directors has gone up. The median increase in total board compensation was nearly 11 percent. The median increase in compensation for individual directors was almost 12 percent. This is the third year of double-digit increases for directors and boards.
Is it no wonder that executive pay is so high? The people determining how much executives will get are lapping up the money too.
A board of directors ought to be examining executive compensation in the name of good governance. The buck has to stop with the directors because, let’s be honest, they will never give up the responsibility to approve executive pay to stockholders and probably shouldn’t.
I favor the trend of companies and boards taking pay cuts and eliminating bonuses when corporate performance stumbles. For example, Western Digital is reducing the salaries of its chief executive and top executives between 15 percent and 33 percent. The company also said in its filings with the Securities and Exchange Commission that it was reducing non-employee director retainers and committee fees by 15 percent for 2009.
“The rate at which companies are reducing executive salaries is certainly accelerating, and in many cases, executives are acting ahead of their boards by voluntarily taking pay cuts,” said Alexander Cwirko-Godycki, research manager at Equilar.
But that’s the problem: We can’t always rely on this volunteer effort.
There has to be accountability and it’s got to start with the compensation committees of these large firms. They have to have an overarching value system that recognizes that their decisions have rippling effects on our entire economy. And if they can’t get it right, we need to make them.
Washington Post Writers Group
Talk to us
> Give us your news tips.
> Send us a letter to the editor.
> More Herald contact information.
