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.

Even in the best of financial times, living within your means can be a challenge. When economies contract, as we are experiencing now, things become even tougher as spendable cash becomes more scarce. From the offices of banks and investment firms, right on down to the worker who wipes tables at your favorite corner diner, people across the country are feeling the effects of economic slowdown. Some of the people most deeply affected are those who make a substantial part of their income as a percentage of sales. As the amount of cash flow dwindles, so shrink the incomes based on commissions and tips at the point of sale.

So shareholders of Aflac (NYSE: AFL) had a really cool idea: wouldn't it be cool if the owners of the company got to have some say in how the top employees at the company were compensated?

I know: blasphemy. But on Monday the company best known for a duck voiced by Gilbert Gottfried became the first company to give its shareholders a say on pay. The result? A big fat nothing. More than 93% of shareholders approved of the $11.96 million compensation package that CEO Daniel P. Amos received for 2007. During Mr. Amos' 18-years at the helm, the stock has appreciated more than 3,000%. So here's a guy who deserves his big payday.

Amazingly, most shareholder resolutions suggesting say-on-pay proposals have been opposed by management and voted down by large institutional shareholders. It's hard to understand given that the votes are simply advisory. Why shouldn't the board hear how shareholders feel about the work of the compensation committee?

But with 93% of voters approving the CEO's package, the say on pay deal at Aflac changes nothing, which is not surprising. Companies that have strong enough corporate governance and shareholders awake enough to demand a say on pay are not likely to suffer from egregious pay problems. The executive compensation outhouses like Countrywide Financial (NYSE: CFC) would never have votes like this.

My perennial near-hero Mark Cuban recently examined the issue of CEO pay, over on his handy soapbox, The Blog Maverick. In his blog post titled "My 2 Cents on CEO Pay," Mr. Cuban outlined his position on the subject and tossed some ideas around. The post makes a good read, and the author makes some good points. Additionally, the 65 or so comments by the readers are well worth the time to cruise them.

I'd like to discuss and expand upon an idea someone presented in addition to those discussed by Mark Cuban. It's actually a reverse scenario to what Mr. Cuban describes as moving chief executive officers into "the cash zone." In the Cuban scenario, the CEO would be paid cash, without additional compensation through stock grants, in order to make their pay more tangible and visible as a business expenditure. Mr. Cuban also asserts that this might more closely align CEO compensation with company performance. It's an admirable idea, but I doubt that it will ever happen.

In this alternate approach, we give the CEO all the stock certificates he or she can swallow. Then we provide an equal number to be divided among all other employees of the company. In this manner of compensation, all employees have their hands on the ball. The concept of laboring to line the pockets of someone else with gold would become extinct. The CEO would suddenly become a real person in the eyes of the rank-and-file laborers. Likewise, the labor force would be inextricably linked to the financial success of the CEO. If labor is to share the risk, they should also share the reward.

A further stop-gap to this scenario would be if upper management deemed that labor cuts were needed to create profitability, or for any reason other than "cause," they and the CEO would be required to surrender share holdings equal to the holdings of the displaced workers. These surrendered shares would then be distributed to the pink-slipped workforce members, with the company paying all applicable taxes on the transfer. Additionally, no party would be allowed to liquidate more than 5% of their holdings in any one year, as long as they were employed by the company, and upper management would be required to maintain holdings at least equal to those of the workforce.

I know it's a lofty scenario, but it sure would beat the heck out of what we have going on now.

With CEOs taking home absurd amounts of money, many top companies are hearing calls from shareholders to limit pay to senior executives. The AP reports: "Fund managers and individual investors alike are campaigning for a 'say on pay' rule giving shareholders a vote on executive compensation at major corporations, especially America's biggest banks. This is the latest salvo in the battle against Wall Street's exorbitance, and this time it appears shareholders might stand a chance."

The argument for limitless compensation says that in order to attract the best leaders you need to pay them. I agree wholeheartedly. In fact one need only look at what happened to Ice-Cream maker Ben and Jerry's to see how the principle works in real life. They wanted to limit the CEO pay to a certain percentage of the lowest paid employee. What happened was that they couldn't find anyone worthy enough to take the job. In the end they gave in to the forces of capitalism and paid a normal CEO salary.

My question is simply why can't we compensate senior executives based on their performance? Why should a CEO who managed to lose his company $5 billion, and lose his shareholders 60% of their investment, receive $50 million plus stock? Why not incentavize CEO's so that if they do a good job, they make tons of money, and if not, they don't. On the other hand a CEO that creates shareholder value as well as corporate profits should make lots of money.

There is no doubting that CEO's work extremely hard and 99% of the population couldn't do their jobs. That being said we shouldn't be rewarding them just because they have the title "CEO." We should reward them based on their success.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 4/13/08.

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.

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.

This week, the Blackstone Group LP (NYSE: BX) announced its Q4 results. It was no surprise that there was plunge in profits (down 89%).

The company's chairman, Stephen Schwarzman, said that "Down cycles are not fun, but they form the basis for enormous future profitability at Blackstone."

Well, today Blackstone released its 10-K report and yes, there's a section on his compensation.

Adding things up, Schwarzman pulled down a cool $350.2 million last year from cash distributions. Also, keep in mind that he netted $684 million from Blackstone's initial public offering (he still has a $3.97 billion equity stake).

Oh, and Schwarzman gets an annual salary of $350,000.

Somehow, this seems fun to me.

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 DealProfiles.com.

As Jonathan Berr wrote on Friday, Former Merrill Lynch & Co. (NYSE: MER) Chief Executive Stan O'Neal, former Citigroup Inc. (NYSE: C) CEO Chuck Prince and former Countrywide Financial Corp. (NYSE: CFC) Angelo Moziilo will make their much-delayed appearance before Congress this week.

The topic of conversation will be their outrageous pay packages -- especially 8- and 9-figure severance packages -- and how they can justify packages that seems so blatantly excessive.

Here's the problem: executive compensation consultants generally present compensation committees with the pay packages that executives at companies of similar size in the same industry are earning. Here's the beauty of that: by that standard none of these guys is overpaid because all of them are overpaid! Isn't that beautiful?

If that sounds circular it is, but that's how executive pay has spiraled out of control. Hopefully, Congress will keep the focus on the raping of shareholders, and not make this into a sound-byte spectacle full of rah-rah populist rabble-rousing.

Looking to get more information for investors about how companies calculate their executive pay packages, the SEC sent 350 letters to companies last summer asking them questions about how they paid executives.

But according to (subscription required) The Wall Street Journal, "A majority of the companies have now received second letters, according to an SEC official, and of 26 companies whose cases were closed, 21 were chided for not giving enough information about the role of individual performance in their pay decisions."

I certainly applaud the SEC for trying to get more meaningful disclosure for us but, sadly, none of it will matter unless big institutional shareholders decide to step up to the plate.

It's a pretty well-known fact that compensation consultants are a joke. It's hard to imagine any metric that gives CEOs raises and eight-figure paydays while their share prices tank and their companies bleed red ink. But that happens all the time.

More disclosure is great and should help to expose just how terrible compensation practices are at so many public companies. Maybe, just maybe, it will embarrass some companies into reforming how they calculate executive pay.

But with institutional investors and pension fund managers who, with notable exceptions, sit on their hands while executives like Angelo Mozilo reap hundreds of millions in compensation as their companies sink to the brink of bankruptcy, not much is going to change.

The Securities and Exchange Commission has unveiled a new internet tool, the Executive Pay Finder, to make it easier for investors to research and compare executive compensation at public companies.

Chairman Chris Cox said that "Gone are the complicated data expeditions that forced investors to hunt through financial statements. The result is quicker and better analysis, and better-informed shareholders."

For now, the service only provides data on the top 500 U.S. companies that have filed proxy statements with the SEC, but it's a pretty cool tool.

Here's the summary table for Coca-Cola (NYSE: KO), and you can compare the compensation of officers by position with those at other companies, all in the same table. Here is a comparison with PepsiCo (NYSE: PEP).

You can even import the results to an Excel spreadsheet if you're feeling especially anal retentive.There's nothing new here, but it's good to see the SEC making an effort to make important disclosures more accessible to investors.

Now if only Cox and his fellow commissioners would stop making it harder for shareholders to actually effect change at the companies they own.

Dateline, January 3, 2007: Bob Nardelli steps down as CEO at Home Depot (NYSE: HD). In leaving, Nardelli, who had been at the head of Home Depot for six years, scooped up a severance package valued at about $210 million, kindly tipped his hat, and slid his resume across the desks of Chrysler. Does this make the man an opportunistic corporate blood sucker, an overcompensated leadership figurehead, or just plain shrewd? My answer to that question would be, none of the above.

When trying to judge the departure of Robert Nardelli relative to his compensation and performance, two things need to be considered right on the front end. First, our jealousy factor must be removed from the equation. Second, we need to remember that compensation packages at this level are negotiated on the front end. Bob Nardelli didn't "get away" with anything. He executed the terms of an employment contract, plain and simple. How many of the ambitious persons reading this blog wouldn't have done exactly the same when given the same circumstances?

Most of the negative sentiment surrounding Nardelli's well-heeled departure emanated from shareholders who were hurt by a slow yet significant decline in HD's share value. But the fact is that within the past four years of Nardelli's tenure, HD's shares provided more consistent performance than the four years prior. Granted, investor's haven't seen Home Depot shares approach the past high of nearly $70, but in light of today's economy they probably won't see anything like that in the near future, and that's certainly not Nardelli's fault.

In a move that has tremendous symbolic significance, Wikipedia will begin paying contributors for producing certain sought-after illustrations.

Philip Greenspun donated $20,000 to fund the program, and according to the New York Times, "The woman running the project for Wikipedia, Brianna Laugher, says the plan is to create a list of articles that need illustrations and then solicit the work. The first list is expected to have 50 illustrations and be completed this month. Contributors will be able to sign up for an illustration and have two weeks to submit it; if it is accepted, the illustrator will be paid $40."

This will be the first time that the foundation that runs the site will pay contributors for their work.

Some might consider this to be a slippery slope -- Isn't the whole point of Wikipedia that it's produced entirely by volunteers? But apparently the site had few people willing to do certain illustrations, and is hoping the nominal compensation will help improve the site.

If Wikipedia really does restrict its pay for production to a few illustrations, it shouldn't have any impact on the site's reputation. But further payment could lead to the complaints that public broadcasting has faced as increased on-air thank you's of sponsors bear a suspicious similarity to commercials.

Generally, the point of stock options is to reward executives if the stock performs well -- if it doesn't, they don't get a reward, and their options expire worthless.

Well there's generally, and then there's Countrywide Financial (NYSE: CFC). The stock has had an absolute meltdown this year, and everyone with the exception of the company's board of directors is demanding change at the top. CEO Angelo Mozilo's sky-high compensation has attracted criticism, and the SEC is investigating his all-too timely stock sales.

Well now, more compensation madness at the company. Countrywide Financial has granted restricted stock and postponed the expiration dates on the stock options on some of the company's top executives including its executive managing director for residential lending who, presumably, had something to do with the subprime loans that have been the company's downfall.

In other words, the executives were, as part of their pay packages, given options that would reward them if the stock appreciated in a certain amount of time -- Well, obviously, it didn't, so now Countrywide is just extending the expiration date.

This is the logical equivalent of an umpire declaring that the bottom of the 9th inning will consist of 43 outs because the home team is losing.

You really have to wonder about Countrywide's management these days and, perhaps more importantly, its well-paid board of directors.

As investors, corporate governance experts (What does that even mean?) and the SEC debate proposals that would give shareholders greater say over executive pay, there's compelling evidence that the time is right. First, chief executives themselves think they are heinously overpaid. If you need more evidence that CEO pay has gotten out of control, I'm not really sure what to tell you.

Anti good-governance zealots are decrying proposals to give shareholders greater say meddlesome, arguing that it could ruin companies' ability to attract good executives. Happily, The Financial Times sees through this nonsense:

Even if chief executives' pay is entirely justified by the value they add, however, it still makes sense to give investors more influence over it. If the present stratospheric levels are needed to attract good CEOs then shareholders will pay up, but if high CEO pay is simply a function of executives' insider power then giving investors control will produce restraint. Either way, plans now afoot to let investors nominate directors are a good first step. They deserve support.

And that's exactly what this is about. Greater shareholder rights is always a good thing -- letting the people whose money is being sent have a greater say in how it's spent makes sense. It's a shame that we even have to have an argument about this.