CEO pay backlash: Take the money and run

KANSAS CITY, Mo. -- Is this irony, or what?

Some of the same corporate boards that inflated executive salaries to balloon-popping dimensions are whining now that they can't retain their top talent.

Their CEOs are taking early retirement because "they have all the money they need." Oops. For a couple of years, I've attended periodic information breakfasts presented by the Hay Group, a business consulting organization that, among other things, studies and advises clients on pay and benefits. Lynn A. Joy, a senior consultant in Hay's executive compensation practice, didn't mince words at a recent breakfast when she warned that huge pay packages for U.S. CEOs were causing problems. And it's not just that the CEOs are so flush they're escaping to Tahiti. Neither is it because worker-bee morale is hurt by insanely skewed corporate pay structures. Big-company compensation committees ignored that fallout while cultivating pay systems to reward Fortune 500-type CEOs with more than 400 times the annual pay of average blue-collar workers. (Just 20 years ago, the difference was `'only'' about 40 times average-worker earnings.) There's also a world marketplace backlash. This is a global economy, remember? European and Asian executives are not drawing anywhere near the monster bucks of their American counterparts, and they don't like competing with those who do. The compensation kinks in the Daimler-Chrysler merger were a perfect example. Uppermost Daimler execs earned noticeably less than Chrysler execs in subordinate positions. Talk about difficulty meshing corporate cultures. Furthermore, the free-market theory of supply and demand -- which holds that top executive talent commands whopping pay because demand for proven business winners exceeds the supply -- has been undermined. Joy blamed Section 162(m) of the federal tax code, passed in 1993. Reacting to public outcry against surging executive pay, Congress decided that publicly traded companies no longer could take tax deductions for compensation exceeding $1 million to any of their top five executives, except for certain performance-based compensation. Companies reacted by channeling more executive pay into those performance-based exemptions, such as bonuses and stock options. But the unintended legacy of the intended pay cap, Joy said, "was that it sent out the message that, hey, we can go up to $1 million before there's a problem of excess -- so it just set a new floor instead of a maximum.'' None of this surprises Responsible Wealth, a program of United for a Fair Economy, and the Executive PayWatch project of the AFL-CIO. The groups have campaigned for years for brakes on executive compensation. Their bottom line is pretty much mine in this regard: Yes, there are executives whose intellect, vision, skill and charisma combine to lead their organizations to strong growth and a competitive advantage. But show me one who's doing it alone. I just can't see how it's possible for Michael Eisner -- to pick on one of the megabuck collectors -- to have earned $575 million last year.

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