Crusading against CEO pay

CORPORATE AMERICA has made a certain number of progress in cleaning up its governance, on the other hand overly high compensation levels for CEO present to view that much remains to be done, says Nell Minow, editor and chairman of The Corporate Library, a research assemblage based in Portland, Me. Here are selected passages from a conversation originally managemented for The New York Times:

Q: by what mode do you assess the progres that corporations have made in improving the way they manage themselves since Enron imploded?

I have a "best of times, worst of times" perspective. a certain number of things are much better than I at any time dreamed. In other areas, things have been disappointingly deliberate and yet in other areas, we've gone backwards. Probably the greatest in quantity important change is in the boardroom. Boards of directors are universally taking the piece of work more seriously and doing a better piece of work It wasn't that long ago that OJ Simpson was upon an audit committee.

Q: in like manner boards are more independent from CEOs?

Ye they are. on the contrary they continue to fail at their single biggest challenge, which is CEO pay. If they can't obtain that right, then something is still wrong

Q: Don't CEO who create wealth for shareholders, customers and employee be worthy of to be well compensated?

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Of course. I'm all for tying pay to performance. on the contrary the fact is CEO pay went up 30 percent last year and performance certainly wasn't anywhere near that.

Q: in what manner did you arrive at that figure of 30 percent?

There are a allotment of different ways of looking at pay. You have to be consistent about it. You can gaze at stock option grants in the years that they are made or you can amortize them above time. The most important thing is to compare apples with apples. It was long-term compensation chiefly but base pay has gone up enormously as well.

Q: Didn't last year diocese major gains in corporate profitability?

Ye on the contrary CEO pay gains were vastly in exces of shareholder gains.

Q: Can anyone outside a company really rule CEO compensation?

The solitary people are the shareholders and they've done a actual poor job. Boards of directors should direction it and, if they don't sway it, shareholders should respond. Shareholders have failed to understand that CEO pay is not just something to shake your head above when you get your substitute statements. Bad CEO pay is a terrible example of bad asset allocation. The turn back on investment for CEO pay is unacceptable. It's an indicator of a failure of oversight upon the part of the board that permeates from one extremity to the other of the company. It's a symptom of a actual serious disease.

"Independent" Directors

Q: Compensation committees are increasingly independent and hire their be in possession of outside consultants. So why is it not working right?

Because at the extreme point of the day, I don't really believe there is like a thing as "independence" upon the board of directors as drawn out as the CEO is still picking the directors. You've got the CEO picking directors and they're writing checks upon somebody else's account. When you have Warren slap admitting in his 2002 annual report that, while serving upon boards, he agreed to approve CEO compensation because it was embarrassing to speak up you know that something is unjust with the system.

Q: on what account do people get so excited about CEO pay on the contrary not about what sports stars and movie stars make?

There are five categories of race in the stratosphere of compensation. Aside from CEO you mentioned sum of two units sports and entertainment, and the other sum of two units are rock stars and investment bankers. These other four are the ultimate pay-for-performance people

There are many actors without there waiting tables and there are many investment bankers who could be waiting tables nearest week. It's all on the basis of market-driven, arm's extent negotiations. If Kate Moss, who is a archetype is photographed using cocaine and fail to keeps all her endorsements, that's a completed example of the market working. on the contrary CEOs are the only individuals who pick the people who station their pay.

Q: Let's say I have created a company whose market capitalization is $10 billion and I have a personal toil worth of $1 billion

Hurray for you. That's great. I be fond of to see that. At my core, I am a capitalist. Unfortunately, what I diocese more often is Gary Wendt saying, "I won't flat walk in the door without a $45 million cash signing bonus." Or the CEO of Global Crossing saying, "I won't walk in the door without 2 million options at $10 a share below market."

Q: Aside from what's happening at United Airlines, Delphi and a certain number of other companies in bankruptcy, wouldn't you say that, overall, boards have made progres in linking compensation to in what way a CEO performs?

No, I don't think with equal reason I was an English major on the contrary even I know that if you give someone 2 million options at today's price and it's not indexed to the market and it's not indexed to the compeer group, he's going to win paid on the basis of what the market does, not upon what he does. I diocese a lot of what I call fiery fudge sundae compensation plans, where you secure the ice cream and the pshaw and the nuts and the whipped cream and the cherries and the bananas. What is that delivering?