Impressions

Compensating the CEO

By Tim Holland

No-one seems to have a problem with the view that CEO’s are somewhat over compensated in the financial services area, except, possibly, the CEO’s themselves, their boards and the, so called, compensation consultant companies hire to recommend pay packages. The difficulty is that where money is concerned, there always seems to be a way to get around the rules.

The idea of putting salary caps on corporate executives may be a laudable, populist concept but is doomed to fail. When the idea first surfaced as a possibility, virtually every newspaper had a report of some kind, usually put together by experts, who showed a whole series of loopholes that even an inexperienced driver could manipulate a truck through.

One of the proposals that a great many corporate executives could probably live with is the one put forth by the junior senator from Missouri, Claire McCaskill. Her recommendation was to limit the pay of CEO’s to no more than the President of the United States. Well let’s look at that one.

The President of the United States gets paid $400,000 per year. Now I would think that just about any reasonable person would have to admit the most powerful person in the world should receive a bit more than a foreign currency trader on Wall Street but there are a few things that go with the job of President that tend to offset the low salary.

Take the private, corporate jet used by the auto makers. Now, admittedly, the auto CEO’s were a bit tone deaf when they flew to Washington but one has to remember that Air Force One is part of the President’s compensation (and it’s a 747 and there are two of them). If the President gets the use of a company plane for business use well, shouldn’t the CEO get it too? The President also get at least one helicopter at his disposal all the time but we’ll let that one go for now.

Housing is another issue. The President is on call 24 hours a day; his life is not his own so he gets an apartment (a BIG, penthouse apartment) at the White House. He also has use of a weekend retreat called Camp David. Neither of these places shows up as compensation for IRS purposes. What CEO wouldn’t like that arrangement? And then there is the summer residence, usually a vacation residence for the first family, that they personally own, transportation to it is on the company plane (Air Force One) and, of course, the residence has been retrofitted with all the latest telecommunications equipment at no cost to the occupant.

Then there is the issue of automobile transportation. That car the President has is a bit pricy and it travels with him wherever he goes; also the security detail he has is a bit of an expense. Actually, I can think of a couple of CEO’s who could probably use that kind of security at this point.

Using the 24 hour a day rationale for the President is just as valid for the large corporate CEO. Find me one that is not attached to his office in some way; whose telephone number is unknown to his associates or leaves instructions, when going on vacation, not to call him for any reason. It just doesn’t happen that way any more, if it ever did.

So how do you stop the excesses that have been happening? The board won’t do it because they are not independent of the CEO, especially when he or she also holds the position of Chairman of the Board. Shareholders won’t do it. Everyone knows that shareholders vote with their feet not with their pens. If they don’t like what’s going on they sell their stock.

What that leaves us with is two courses of action: SEC and Department of Justice rules and regulations with regard to the operation of the company as it relates to the public marketplace and “sunshine.” By the latter I mean public ridicule and outrage that can be brought about through media exposure, be it by journalists or the government. Just as we require governments to make decision making transparent, a bit more public transparency for public corporations might prove interesting as well (and I don’t mean more unreadable financial disclosure reports – if CEO’s themselves could understand them they wouldn’t be in the difficulties they’re in at the present time).

Greed, in and of itself, is not regulatable, its control ultimately relies on an ethical and moral standard established by the individual. Not all CEO’s are greedy; the ones that are just become more visible when they are caught because of the size of their excess. Paying ones self a large multimillion dollar bonus when cutting jobs to save expenses is not just an example of arrogance but stupidity as well. Any CEO that would propose such course of action should come under immediate review for incompetent behavior, unless, of course, he controlled the board, which he probably does, and feels immune to public pressure.

The proposal to limit executive pay may have one major benefit in that the executives affected will do their level best to get their companies out from under the government’s thumb as quickly as possible, which will mean as little delay as possible in paying off their debt to the United States. We can only hope something works, at least for a while.

Note:

Tim Holland is a stall writer for ToTheCenter.com, an internet news magazine. He currently reports financial news, as well as a weekly Op-Ed column for the magazine on a variety of topics. Copies of previous Op-Ed columns, Essays, News Reports, Research and books and reading lists can be found at www.tim-holland.com. Comments are welcome and may be sent to: Admin@tim-holland.com

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