CEO Pay: How Long Can the Pillaging Persist?

The financial crisis focused a lot of attention on outrageous CEO and executive compensation. Unfortunately, while the general public may now be all too aware of these excesses, the folks approving or accepting these massive pay packages seem to remain blithely ignorant. But with shareholders rapidly growing fed up with getting so little bang for so many bucks, these overpaid execs had better get their act together -- fast.

Shareholders have had enough...
The recent Dodd-Frank Act mandated a slate of shareholder-friendly policies, including giving investors a say on pay, as well as allowing them to chime in on how frequently they should vote on compensation (also known as "say when on pay").

According to The Corporate Library's examination of this year's data thus far, out of 100 "say when on pay" votes that have already taken place, an overwhelming majority of shareholders prefer annual votes to biennial or triennial ones. Clearly, shareholders demand an active say on compensation on a regular basis. But while apathetic shareholders may be yesterday's news, questionable pay packages for CEOs and other bigwigs remain very much in the headlines.

... But executives apparently haven't
Last year, Occidental Petroleum (NYSE: OXY  ) reined in its compensation policy after a withering shareholder uproar over CEO Ray Irani's pay, which far exceeds levels at peer corporations. Though Irani will step down from his post this year, he's going out with a bang. His 2010 compensation skyrocketed to $76.1 million, more than double his pay the previous year.

Although Ford's (NYSE: F  ) arguably the best game going in Detroit's auto biz, CEO Alan Mulally's pay has come under fire. United Auto Workers' President Bob King called Mulally's $54.5 million worth of stock, disclosed earlier this month, "morally wrong." And this figure doesn't even encompass Mulally's total pay package; that information hasn't even been disclosed yet. (In fairness, Mulally did achieve the performance goals the company set for him several years ago.)

After looking over their company's squandered shareholder capital, Pfizer (NYSE: PFE  ) shareholders could probably use an entire array of the company's pharmaceutical products. Pfizer nearly doubled new CEO Ian Read's pay in 2010 to $17.4 million, even though he had just started the job on Dec. 5. Do the math on that one. Meanwhile, it also kicked in an extra $10 million on top of the existing $24.7 million windfall for exiting CEO Jeff Kindler.

Shelved in the "No, seriously, you've got to be kidding" section of the fiction department (right around where they keep Dan Brown's best-sellers and the Twilight series), busted Borders Group is trying to get permission from the bankruptcy courts to dole out as much as to $8.3 million in bonuses to its executives, including a $1.7 million payout to its president. Since when is bankruptcy considered a bonus-worthy job well done? No fair citing AIG as a precedent, guys.

The world is clearly changing, though, with shareholders increasingly saying "no more" to excessive compensation. Yesterday, a majority of Hewlett-Packard (NYSE: HPQ  ) shareholders voted down executives' pay. And after Beazer Homes (NYSE: BZH  ) shareholders shot down the companies' pay policies already this year, a union-affiliated pension fund has also filed a lawsuit against the homebuilder.

Time to get the message
The rampant greed that defined our most recent economic bubble might be a difficult habit for some corporate leaders to break. In a more humble post-crisis world, compensation committees would rein in pay, and CEOs might even request a pay cut, to nobly suffer alongside their workers. Despite increasing shareholder scrutiny, you shouldn't hold your breath for any of these pipe dreams to actually materialize.

However, major news outlets such as The Wall Street Journal and CNN are more actively covering the sort of controversies I listed above, and plenty of more focused sites and services like BNET, The Corporate Library, and Footnoted.com -- not to mention The Motley Fool -- are digging through the data, too.

If pay and performance don't start to find a reasonable balance, the issue may move beyond debate in the media and among the public. The Securities & Exchange Commission has already eyed regulating Wall Street bonuses. At the end of March, it's planning to draft rules concerning increasing the independence of corporate compensation committees, and decreasing conflicts of interest among compensation consultants and other advisors.

Frankly, it's pretty sad that some of corporate America's top brass simply don't understand that their greedy glory days are over. One way or another, though, they're going to get the message.

Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on corporate governance.

Pfizer is a Motley Fool Inside Value pick. The Fool owns shares of Ford, which is a Motley Fool Stock Advisor choice. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned; for more on this and other topics, check back at Fool.com, or follow her on Twitter: @AlyceLomax. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 25, 2011, at 4:35 PM, dbtheonly wrote:

    The problem is simply that the BOD & the CEO of the various companies are too cozy. The BODs have not acted as breaks or counter-weights to the excessive demands of the CEO.

    Equally there seems to be no downside for the BOD in doing so as they seem to be returned by the shareholders regardless of result.

  • Report this Comment On March 28, 2011, at 11:24 AM, mtf00l wrote:

    Answer: forever

  • Report this Comment On March 29, 2011, at 6:42 AM, oneupper wrote:

    Corporations are among the least democratically run institutions in the "free" world.

    By-laws favor incumbents and insiders and there is very little in the proposed SEC rule amendments that will change that.

    Until investors realize that their retirement savings are going to fund corporate fat-cats and rebel, nothing's going to happen.

    In the meantime, keep on playing Wall Street's game. The children, grand-children and great-grand children of the insiders will be grateful.

  • Report this Comment On March 31, 2011, at 5:44 PM, architect305 wrote:

    keep it simple, amend the IRS code to include...for a publicly held company, if an executives pay (including all bonuses, perks and benefits) exceeds 200 times the average wage including benefits, of the company's non-executive work force, (including all overseas workers), than, that company may not take any tax credits or deductions for that year. and, No bonuses may be paid to any executive of a company that declares bankruptcy.

    May have the benefit of increasing the base wage and benefits of workers and reducing overseas manufacturing where wages are embarrassingly low.

  • Report this Comment On March 31, 2011, at 6:40 PM, sailmx wrote:

    WE all put our pants on the same way only some got lucky not greater skills. The GOLDEN RULE needs to be applied here.

    My protest is to vote no across the board on any and all issues any board favors and against any existing board member. Maybe somebody will begin to get the message.

    No employee of a public company should earn more than $500,000 /yr, no sane person can spend that much! Only egomaniacs!

  • Report this Comment On April 01, 2011, at 4:12 AM, sidoze wrote:

    Ya'll a bunch of whiners.

    I'd push for a share buy back initiative if I was at the helm and people started chapping over my pay.

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