CEO Pay: Wild – Probably Cannot Be Tamed

Can wild CEO pay be tamed? Probably not
The gap widens: CEO compensation 275 times the salary of average worker
By Eve Tahmincioglu
updated 10:50 a.m. CT, Wed., Oct. 1, 2008

The guys who ran the recently collapsed Lehman Bros., Merrill Lynch, Bear Stearns, Fannie Mae and Freddie Mac all prove one thing.

You don’t always get what you pay for.

Big paychecks for jobs not well done:
# Lehman Bros.’ Richard Fuld, $40 million.
# Merrill Lynch’s Stanley O’Neal, $46 million.
# Bear Stearns’ James Cayne, $40 million.
# Freddie Mac’s Richard Syron, just shy of $20 million.
# Fannie Mae’s Daniel Mudd, $12.2 million…

Why? Because regulators never go far enough in giving shareholders a true voice. It’s difficult to break up entrenched boards of directors that make the decisions on executive compensation…

…now 275 times the salary of the average working stiff, according to the Economic Policy Institute.

“Government regulators are notoriously ineffective at reining in pay, and oftentimes the unintended consequences caused greater problems,” says Charles Elson, an expert on corporate governance at the University of Delaware…

These concerns resulted in a 1986 change in the tax code creating a penalty tax on excessive golden parachute payments more than three times an executive’s base pay…

In 1992, the Securities and Exchange Commission introduced proxy disclosure rules taking information about executive compensation that was once narrative and thin on numerical values, and putting actual numbers out there for all to see…

“Certainly, compensation practices at these companies have been a major contributor to the financial crisis,” says Paul Hodgson, a senior analyst at the Corporate Library, an independent governance research organization…

This year’s theme: the link between CEO pay and the subprime disaster.

“A large part of how we got here, in addition to lack of regulation and greed, was the way the incentive packages were structured to incentivize the executives to take risks,” he notes. “As a result, lots of money was paid to undeserving CEOs.”
© 2008 MSNBC Interactive

The Gap Widens – CEO Compensation


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