Heads they win, tails they win
The Boston Globe Editorial
April 13, 2008
PAY FOR chief executives at top companies has risen to levels that aren’t just unattainable for the average worker, but unimaginable. Can anyone really contribute $350 million worth of sage leadership in one year, as Stephen Schwarzman of the Blackstone Group ostensibly did in 2007?
For years, generous CEO compensation packages have been justified on the grounds of healthy corporate profits and rising stock prices. So now that stocks are sinking and subprime mortgage woes have metastasized across the entire economy, shouldn’t top executives’ pay now be dropping? As if!
In fact, chief executives at 200 large companies are still earning more than ever – an average of over $11 million, The New York Times recently reported. The heads of the 10 largest financial firms earned a total of $320 million last year, the paper noted, even though their shareholders lost $200 billion. Such excesses are impossible to justify – not just to the pitchfork-wielding farmers of a century ago, but to middle-class workers, whose retirement depends on stocks.
Charles Elson, an expert in corporate governance at the University of Delaware, notes that CEOs often assume little risk but get the same payoff as independent entrepreneurs. He predicts that rule changes on stock exchanges and in Delaware, where many companies are incorporated, will promote more sensible pay. He says restricted stock grants would give executives an interest in a company’s long-term health.
Then again, stock options were meant to do that in the 1990s, and executives abused those incentives as well.
Stronger medicine is in order. In a recent speech in Boston, Representative Barney Frank, chairman of the House Financial Services Committee, raised the need for executives to assume downside risk. Maybe the threat of congressional action will make boards think twice about rewarding CEOs for success when there’s no success to be rewarded.
© Copyright 2008 Globe Newspaper Company.
