In light of an unprecedented level of criticism being leveled at executive pay packages, companies are coming forward with greater disclosures about how they pay their executives. But according to the Sunday New York Times's terrific look at executive pay, it may be too much, and yet not enough:
Inclusion of new data, like the value of retirement benefits and potential severance payouts, was supposed to paint a fuller picture of everything that an executive could make. Disclosure of such things as the performance criteria used to award lucrative bonuses was supposed to make the pay-setting process clearer. And the addition of a single headline number that tallied up all the elements of annual compensation was supposed to make different executive pay packages easier to compare. But while all the new disclosure rules have resulted in far more information, analysts say they still do not necessarily offer greater insight.
"It's like reading through Tolstoy's 'War and Peace,' " said Lynn E. Turner, a former S.E.C. chief accountant and now a managing director of research at Glass, Lewis & Company, a proxy research firm in San Francisco. "What is missing is a clear, succinct story about how the compensation committee came to the amount they were going to pay."
From later in the piece:
Clarity Communications, an investment relations firm, analyzed the new compensation discussion sections of 40 big companies that filed their proxies before March, to measure their readability. The company used three standard tests that gage sentence length and word complexity. From Clarity's perspective, all 40 companies fell short. Even state insurance contracts were easier to read.
Ouch! When reading proxies, investors are having trouble answering simple questions like "How much did the CEO's pay increase this year?" One way that many companies are making things less confusing is switching to more cash-based pay. Some are replacing perks like club memberships, jet use, etc. with more cash, so the executive can decide what to do with it herself.
In spite of all the confusion and increased disclosure, pay packages for CEO's rose an average of 9.8% last year. It will be interesting to see whether continued focus will lead to a slowing in the growth.
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Reader Comments (Page 1 of 1)
4-12-2007 @ 12:32AM
Elisa said...
CEO and executive pay compensation includng almost unbelievable numerous perks and stock options are obscenely high.
The system with its large stock holders, such as banks and mutual funds, are the main supporters.
Maybe it's time for a revolution. Tear down the system and start over...
4-12-2007 @ 12:32AM
Carol said...
Stockholders need to keep this issue of excessive executive compensation on the front burner. The annual meeting is a good place for voting down these pay packages--but the institutional investors seem to hold all the cards. There is where the resolution needs to originate to bring compensation in line to improve the bottom line for all investors. And when individuals receive their notification of the annual meeting and the resolutions are listed on that notification, there should always be a resolution regarding executive pay which can be the key to limiting these outrageous pay packages. No one person is worth more than ten times the annual wage in this country. And that is where the limit should be drawn. A company is supposed to be working for the benefit of the country and it's stockholders. It is expected to pay all employees a fair wage. But it is not expected to generate a windfall for a slew of executives.