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Activists put CEOs in a fishbowl

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Median cash income for CEOs climbed from $1.8 million in 2002 to $2.4 million in 2005, according to the most recent Mercer Human Resource Consulting survey of 350 large public companies. Total compensation packages, which include such long-term incentives as restricted stock, climbed from a median of $6.1 million to $6.8 million over the same three-year period.

From the first meetings in March until the season winds down in late June, shareholders will be debating how to keep the boss from being overpaid. Should CEO compensation be subject to shareholder review before a board gives its approval? Should pay-for-performance incentive programs be restructured to get better results? Proposals vary from firm to firm, but all seem designed at least to blunt a repeat of Home Depot's 2006 payoff. CEO Robert Nardelli, who failed for six years to boost the company's stock price, ultimately resigned with a $200 million severance package.

Besides highlighting such cases, activists should also benefit from new SEC rules, requiring companies to disclose total CEO compensation in one location where it's easy to decipher.

"[It] can cause some real shock reaction," says Ralph Ward, publisher of the online magazine Board Room Insider. "This is giving shareholders a lot more ammunition."

Mr. Ward also expects shareholders to review executive perks – such as private jet travel – more carefully now that firms must reveal all such expenses in excess of $10,000.

Ward notes that this year's raft of pay-related initiatives almost exclusively target firms that have performed weakly. That's because he says shareholders can generally stomach big salaries, generous stock options, and perks for leaders when an organization is thriving. Conversely, he says activist shareholders are most likely to agitate and prevail this year at the likes of Hewlett-Packard, United Health, and other companies eager to improve board oversight in the wake of reports highlighting governance problems.

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