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sisyphusshruggedCapping Pay Of CEOs Is the Way to Go
By Steven Pearlstein
Friday, September 19, 2003; Page E01, the Washington Post, no less
You knew it had to happen.
No sooner had poor Dick Grasso announced his resignation than the hounds immediately turned on the "real" culprits in this latest excessive-pay scandal, the board of directors of the New York Stock Exchange. After all, either these pillars of the financial community were guilty of astonishingly bad judgment in approving Grasso's $188 million deferred compensation package , or they didn't understand it and were fools to vote for it anyway.
According to the standard protocol for such scandals, it's only a matter of time before the board's chairman and members of the compensation committee will have to resign, just before the whole lot of them are summoned before some outraged congressional committee. Then poor Arthur Levitt or John Bogle will be recruited to head a blue-ribbon panel to come up with a new governance structure -- one that separates the exchange's profitable trading functions from its regulatory ones, which everyone will agree never should have been combined in the first place.
This focus on governance, transparency and eliminating conflicts of interest is fine as far as it goes. But two years after Enron broke into the national consciousness, I'm coming to think that it doesn't go far enough.
As Warren Buffett warned earlier this year, the litmus test for corporate reform is executive pay. Excessive pay warps the judgment and the ethics of executives while isolating them from the employees they are supposed to lead and the shareholders they are supposed to serve. It is the original sin of corporate malfeasance, the crown on the head of the imperial CEO.
While the structure of pay packages is getting better -- General Electric announced a fine new policy this week -- the level of pay remains needlessly high. Aligning executive pay with the interests of long-term shareholders is only part of the challenge. The other part is aligning it with the pay of everyone else...
Now granted, Warren was a friend of Kay's, but it still surprised me to see this in the Post.
By Steven Pearlstein
Friday, September 19, 2003; Page E01, the Washington Post, no less
You knew it had to happen.
No sooner had poor Dick Grasso announced his resignation than the hounds immediately turned on the "real" culprits in this latest excessive-pay scandal, the board of directors of the New York Stock Exchange. After all, either these pillars of the financial community were guilty of astonishingly bad judgment in approving Grasso's $188 million deferred compensation package , or they didn't understand it and were fools to vote for it anyway.
According to the standard protocol for such scandals, it's only a matter of time before the board's chairman and members of the compensation committee will have to resign, just before the whole lot of them are summoned before some outraged congressional committee. Then poor Arthur Levitt or John Bogle will be recruited to head a blue-ribbon panel to come up with a new governance structure -- one that separates the exchange's profitable trading functions from its regulatory ones, which everyone will agree never should have been combined in the first place.
This focus on governance, transparency and eliminating conflicts of interest is fine as far as it goes. But two years after Enron broke into the national consciousness, I'm coming to think that it doesn't go far enough.
As Warren Buffett warned earlier this year, the litmus test for corporate reform is executive pay. Excessive pay warps the judgment and the ethics of executives while isolating them from the employees they are supposed to lead and the shareholders they are supposed to serve. It is the original sin of corporate malfeasance, the crown on the head of the imperial CEO.
While the structure of pay packages is getting better -- General Electric announced a fine new policy this week -- the level of pay remains needlessly high. Aligning executive pay with the interests of long-term shareholders is only part of the challenge. The other part is aligning it with the pay of everyone else...
Now granted, Warren was a friend of Kay's, but it still surprised me to see this in the Post.
