America's CEO pay may soon face squeeze
New laws, a change in Congress, and investor pressure intensify the scrutiny on compensation.
The pay packages of America's CEOs still include enormous stock options, rich pensions, and other perks of a Learjet lifestyle. But pressure from investors and regulators is exerting some new restraint on controversial compensation practices.
The changes so far can't be called a revolution. Yet after years in which top executives have faced mounting criticism for their lavish pay, new rules and scrutiny may be tempering the trend.
The signs include:
•Post-Enron laws have made corporate boards less likely to rubber-stamp recommendations of managers. On top of this, many boards are trying to tie pay more closely to company performance.
•Democrats, concerned about rising inequality of incomes in the US, may support more legislation to curb executive pay as they take control of Congress later this week. At the very least, committee hearings will become a platform for critics.
•Investors are stepping up to oppose compensation packages that can eat up 10 percent or more of company profits. Wednesday, Home Depot chief executive officer Robert Nardelli resigned after months of criticism for his high salary and the poor performance of the company's stock price.
•New federal mandates require large companies to disclose the total compensation of high-paid executives more straightforwardly in their annual reports.
"The good thing about this is it's going to force boards to sit down and carefully justify things that they are doing," says David Larcker, a compensation expert at Stanford University in California. "Executive compensation has always been controversial, and I think it's even more controversial now."
Indeed, critics say executive pay remains out of control. And even defenders of the current system say excesses need to be fixed.