The Bush administration has taken the approach that business can do no harm. So we have had eight years of the fox guarding the hen house. Adding a few more thoughts to yesterday's Sunday Funnies: Business should have NBA type salary cap. The subject of executive pay at public corporations sometimes raises eyebrows, sometimes raises voices, and often loud protests.

When companies perform poorly financially and it is reflected in the share price the protests are even louder and more justified.

Like they say about pornography... When executive pay becomes so high that it becomes obscene, you may not be able to define it exactly, but you know it when you see it!

Unfortunately these protests are not coming from the board room, or large institutional investors or pension funds, although they should! They come from the "hard working stiffs" that go unheard and disrespected -- and the common shareholder.

Lehman Brothers Holdings Inc. (NYSE: LEH) is trying real hard to convince its Gucci-clad workforce not to abandon ship.

According to CNBC, employees will receive 20% of last year's bonus in stock that vests over three years. "Lehman's decision to issue additional stock to employees is being interpreted by some in the market as a sign that the Lehman is not planning to sell itself for a below-market price," writes CNBC ON-Air Editor Charlie Gasparino.

Hmm. Didn't the same conventional wisdom believe that Bear Stearns was too big to fail and that the end of the write-downs at Wall Street banks was near? So, pardon me if I am a little skeptical.

As Fortune magazine notes, Lehman, like other Wall Street banks, got itself into trouble by making scores of bad real estate investments.

"Because it prided itself on real estate expertise - it helped popularize real estate-backed securities in the early 1970s - and investment prowess, Lehman risked far bigger proportions of its own capital doing deals than its major competitors did," the magazine notes. Little wonder that the stock is down more than 65% this year.

Sorting out through this mess will take years. Any Lehman employees who were smart enough to get hired probably know a bad deal when they see it. This well-timed leak to CNBC is part of Lehman's efforts to avoid becoming the next Bear Stearns.

For now, the ploy is working. Shares of the New York-based investment bank are trading up on the news -- Lehman shares closed up 6.68%. Over the long run, though, investors and Lehman employees will see through the smokescreen.

There ought to be a law. That would be legislation which limits what public company CEOs get when they are fired. Maybe the limit should be $1 million. How much is failure really worth?

The departing head of American International Group (NYSE: AIG), Martin Sullivan, will pick up $47 million as he hits that door. According to the FT, "Mr Sullivan's departure was deemed a resignation for "good reason", according to AIG." His "good reason" was that the board would not allow him to stay in the building. What better excuse can a man get?

Sullivan can hardly be blamed for taking the money and retiring about his yacht to hit golf balls into the ocean. The AIG board shoulders that burden. The chairman of that board, Robert Willumstad, took Sullivan's job. Maybe it was easier to move up to CEO with Sullivan fat and happy.

But, there ought to be a law.

Douglas A. McIntyre is an editor at 247wallst.com.

Lehman Brothers Holdings Inc. (NYSE: LEH) Chief Executive Richard Fuld continues to keep his job even though shares of the New York-bank have slumped more than 60% this year. Meanwhile, American International Group Inc. (NYSE: AIG), whose shares are down 42%, ousted CEO Martin Sullivan because of the continued poor performance of the world's largest insurer.

Why didn't Fuld follow Sullivan onto the unemployment line, albeit the cushy one for failed CEOs? It makes no sense.

Last week, Fuld shocked investors by pre-announcing that Lehman lost $2.8 billion, or $5.14 per share, results that were officially confirmed today. In the earnings release, Fuld proclaimed the results as "unacceptable" and vowed to "take the necessary steps to restore the credibility of our great franchise." Well, at least he says that's what he wants to do. He dismissed Lehman President Joseph Gregory and Chief Financial Officer Erin Callan last week. On the conference call, Fuld even took responsibility for the loss and investors cheered this act of contrition, sending shares of Lehman up.

The euphoria is not going to last. I am not sure why Wall Street believes that Fuld can extricate Lehman from the financial quagmire that occurred on his watch. They certainly did not give Merrill Lynch & Co.'s (NYSE: MER) Stan O'Neal and Bear Stearns & Co.'s (NYSE: BSC) James Cayne or Citigroup Inc.'s (NYSE: C) the benefit of the doubt.

The Associated Press reports that "as the American economy slowed to a crawl and stockholders watched their money evaporate, CEO pay still chugged to yet more dizzying heights last year." The average S&P 500 CEO took home a pay package valued at $8.4 million in 2007, an increase of 3.5%. The top 10 highest paid CEOs took home a total of more than $500 million, but 5 of those companies saw huge drops in profitability at their companies. It's good to be the boss, even when it stinks to be the shareholder.

On one level, criticizing rising executive pay based on the performance of the economy is grossly unfair: executives should be paid based on their marginal value to the company, not based on broader economic trends that they have no control over. The problem is that executives routinely benefit from factors they have no control over: any CEO of any oil company is doing quite well just for being in the game. When things are going well, everyone's happy, and shareholders generally don't complain about CEO pay when they're earning double-digit returns. But when CEOs don't take a hit with the shareholders on the way down, it's not fair. CEOs are in the ideal "Heads I win, tails it wasn't my fault and I still win" situation.

What can be done about executive compensation problems? That's easy: improved corporate governance that can only be achieved through an increase in shareholder activism. Large institutional shareholders need to get off their hands and threaten with proxy fights when corporate boards fail to do their jobs. For its part, the SEC can improve proxy access, making it easier for dissident shareholders to affect change if that is the will of the majority.

Right now, companies can be run by small clique of insiders who have virtually no stake in the company's long-term future -- and decades can go by without any accountability. Until that changes, executive compensation in America will continue to be a disaster.

The Wall Street Journal reports (subscription required) that if Nabors Industries' (NYSE: NBR) 78-year old chairman Eugene Isenberg died, the company would have to pay his estate "severance" of $263 million.

According to the Journal, "Dozens of other companies offer lush death-benefit packages to their top executives, according to a Wall Street Journal review of federal filings. Many companies accelerate unvested stock awards after a death, which by itself can amount to tens of millions of dollars. Some promise giant posthumous severance payouts, supercharged pensions or even a continuation of executives' salaries or bonuses for years after they're dead."

What?! A continuation of salaries and bonuses after the CEO dies? I have to tell you: it speaks volumes about how low the performance targets for bonuses are at America's public companies when they can be achieved from 6-feet under. How can a bonus possibly be performance-related when it's paid out even if the executive kicks off? I just don't get it at all.

It gets worse: executives are given hefty parting gifts in exchange for non-compete agreements -- by signing the employment contract, they agree not to go work for a competitor if they part ways. They still get those non-compete payments if they die. But maybe that makes sense: even a dead guy could probably deliver stronger results than Borders Group (NYSE: BGP) CEO George Jones has. Rumor has it that the company has considered replacing him with Tolstoy.

Be sure to read the Wall Street Journal piece. It's depressing, hilarious, and pathetic, all at the same time. If you needed more proof that corporate governance in America is a joke, look no further.

The problems of executive compensation at big financial companies like Merrill Lynch (NYSE: MER) and Citigroup (NYSE: C) are obvious. Executives who led their companies into massive losses on risky bets walked away with huge parting gifts, even as shareholders nursed billions in losses. Congress held hearings and financial journalists everywhere cried foul. But corporate governance helps people who help themselves and, for whatever reason, most shareholders have made the inexplicable decision that they don't even want an advisory vote on executive pay.

The Wall Street Journal reports (subscription required) that "At Citigroup Inc., J.P. Morgan Chase & Co., Merrill Lynch & Co. and Morgan Stanley, proposals that would let investors weigh in every year with a nonbinding vote on compensation got an average of just 37% of shareholder votes, according to the latest tallies. Similar proposals in last year's proxy statements for the same companies got 43% support."

How is that even possible? When the problem of pay gone wild is so obvious that even laissez-faire capitalists are saying something is screwed up, why would shareholders reject an opportunity to have their nonbinding voices heard? It just doesn't make any sense at all.

Part of the problem may be that individual investors aren't voting. But I also wonder whether there's some home cooking going on. Are the large institutional shareholders that control the bulk of these companies voting to keep the executive pay gravy train flowing because they have a personal stake in it?

If so, they should remember that their fiduciary duty lies with the investors for whom they own the shares. If regulators want to make themselves useful, they should take a look at this possible conflict of interest.

A new bit of research is out that shows CEOs are feeling the effects of the economy, much like everyone else...

Aflac (NYSE: AFL), which is a major insurer, has an off-beat message – at least, according to its commercials (which involve a noisy duck).

Well, the company has made some history this week. That is, the shareholders can vote "yes" or "no" on executive compensation.

While it is non-binding, it is still important. If anything, its recognition from Aflac that its shareholders have a say on things.

Funny enough, the company really doesn't need this in terms of pacifying shareholders. After all, Aflac has been a solid performer.

However, does this mean we'll see other firms join in the trend? Perhaps some. But, when it comes to giving up a little power, you're likely to see lots of resistance in the boardroom.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

Countrywide Financial's (NYSE: CFC) corporate governance satire worthy of Gilbert & Sullivan continues with the release of the company's proxy statement.

CEO Angelo Mozilo's pay package dropped 79% -- to $10.8 million. Worse, president and COO David Sambol and managing director Andrew Gissinger III did not even come close to meeting the company's insider stock ownership guidelines -- which worked out well for them given the company's precipitous decline in value.

Just for laughs, here's an excerpt from the company's executive pay philosophy pulled directly from the proxy statement:

Pay for Performance. Our compensation programs are intended to motivate our named executive officers to achieve a superior level of performance in the diversified financial services industry. The amount of compensation for each named executive officer is intended to reflect the executive's experience, his or her individual performance and the performance of the Company. Several of our compensation programs are expressly tied to performance of the Company or the named executive officer, including our annual incentive awards program and our equity awards program. In general, our compensation is heavily weighted toward performance-based pay, and we seek to balance incentives for both short-term and long-term performance.

Here's my question. If you're a Countrywide director reading this, feel free to respond in the comment section: When you're stock declines from over $40 to under $10, how can your CEO earn $10.8 million under a pay-for-performance philosophy?

Perhaps Countrywide has a sense of humor, and the description of executive pay was meant to be ironic. But the company's shareholders probably aren't laughing.

Speaking in Prescott, Arizona, Senator and presidential candidate John McCain weighed in on the topic of executive compensation, normally a topic discussed by Democrats. From The Wall Street Journal (subscription required:

And could I add, I think it's outrageous that someone who is the head of Bear Stearns (NYSE: BSC) cashes millions and millions of dollars in stocks. And I think it's unconscionable when the guy who apparently is the head of Countrywide (NYSE: CFC) and his co-conspirators make huge amounts of money while Americans are facing the threat of losing their own homes. t's a terrible thing.

While I'm glad to see that horrendous executive pay practices are now being discussed by candidates in both parties, McCain is really just playing up to populist causes with his comments about Americans losing their homes, and that's not the right reason to be mad about the pay packages that executives like Angelo Mozilo received.

Keep in mind that it's these home owners that are losing their homes that are the reason that Countrywide stock is in the toilet. Countrywide shareholders are not getting rich because people are losing their homes. Au contraire, Countrywide's loose lending practices had the worst impact on the company's shareholders.

As CEO of Countrywide, Mozilo's fiduciary duty was to the company's shareholders, and his pay should have been structured in a way that his compensation was structured to reflect the performance of the company. When the stock loses 80% of its value and Mozilo walks away with hundreds of millions, that's a problem, but it's a corporate governance problem, not a populist one.

Today's Wall Street Journal reports (subscription required) on the increasing number of top executives who are turning down their bonuses. According to a study of recent regulatory disclosures, at least eight CEOs of major U.S. companies including Bear Stearns Cos. (NYSE: BSC) and Zions Bancorp (NASDAQ: ZION) turned down last year's bonus. In addition, a ninth CEO requested a smaller bonus.

Maybe some people see this as an encouraging sign that there actually is a limit to corporate greed, but I'm not one of them. How incompetent and stupid are compensation committees and executive pay consultants when they're handing out checks that are so out of line with CEOs' performances that they actually turn them down out of fear of being embarrassed in the company's proxy statement?

The fact that CEOs are being handed money that they think is excessive is indicative of what a joke executive compensation has become: salaries and bonuses are set by bureaucrats, people with sinecures and little in the way of an economic stake in the outcome. You have to think that corporations with non-management directors who own large stakes in the company are less likely to be handing out money so willy-nilly that managers feel compelled to give it back.

If CEOs at a company you own shares in turn down their bonuses, don't be impressed by their magnanimity. Be mad at the board that offered it to them in the first place.

A piece on Portfolio.com reports on an increasingly popular trend in executive compensation: the $1 salary.

Of course, in this era of outrageous pay for poorly-performing executives, the prospect of a $1 salary has its allure for investors. It's refreshing. But when you hear about a $1 salary, you still have to dig deeper to learn how much a CEO really made.

For instance, Capital One (NYSE: COF) CEO Richard Fairbanks' 2007 salary of $1 made for great headlines but a look at the proxy statement pegs his total compensation for the year at more than $20 million because of generous options grants -- which can come back to dilute the shareholders in the future and are therefore a very real expense.

Why would he structure his pay like that? Portfolio reports that "Salary is taxed at rates as high as 35 percent, while capital gains from stock sales are taxed up to 15 percent. Cutting down the salary portion of an executive's compensation could help reduce the overall tax bill."

With the vast majority of large-cap CEOs in the 35% bracket, taking cash over stock may be leaving money on the table.

But the proxy statement for Apple (NASDAQ: AAPL) shows that Steve Jobs really does only earn $1 and, more impressively, essentially never sells stock. There's a guy who really is aligned with the company's long-term shareholders.

The point is that there's nothing wrong with a CEO boasting that he only takes $1 per year in pay -- but there's also nothing necessarily great about it either. To really understand compensation, you have to go past the sound bytes and read the proxy statement.

Today's Wall Street Journal reports (subscription required) on a study from Watson Wyatt Worldwide that found that just 23% of companies provided unexpected severance payments to departing chief executives.

This runs counter to a lot of the media outrage over payments made to "retiring CEOs." Testifying before Congress earlier this month, former Merrill Lynch (NYSE: MER) CEO Stanley O'Neal made this comment about the outrage over his retirement package:

"There has been some press about my so-called `severance package.' These stories are inaccurate. The reality is that I received no severance package. I received no bonus for 2007, no severance pay, no `golden parachute.' ...In fact, if I had received all of my compensation in cash during my tenure, I would have received no "payout" at all upon retirement ..."

Mr. O'Neal was bringing up an important point -- perhaps he had been treated unfairly, and all this talk about "golden parachutes" does not reflect the reality of executive compensation in America.

A look at the new Google (NASDAQ: GOOG) proxy shows that founders Sergey Brin and Larry Page were each paid $1 for their work in 2007. Steve Jobs has done the same thing at Apple (NASDAQ: AAPL). Of course, the two Google founders each have about $13 billion in stock and Jobs is also rich as Croesus.

The $1 salary is a bit of theater. It says that the compensation of senior management will be built on the stock price. If it does not do well, all we have is that $1.

The gesture does not even fool idiots when the share price is down and the management is wealthy. Even with Google off from a high of $747 to its current price of $450, Brin and Page retain wealth which is beyond most investors' wildest dreams. The level of their salaries has no meaning.

Google shareholders would be much happier if Brin and Page plundered the company for tens of millions in compensation provided that they get the stock back over $700. The $1 salary is just an insult.

Douglas A. McIntyre is an editor at 247wallst.com.