Reports this week indicate that Kenneth Feinberg, the Obama administration's pay czar, has a darkly comic definition of "tough love." While Feinberg reduced overall cash compensation for the top earners at American International Group (AIG) by a healthy 63%, a closer look reveals that the insurance company's high-ranking employees are still pulling down the kind of eye-popping annual pay you might expect from a successful business.

How's this for a kick in the pants: Flying in the face of it's first quarterly loss in 16 years, a seriously questionable compensation package has just been awarded to the new, short-time CEO of Harley-Davidson Inc. (HOG).

Keith E. Wandell, the new Harley-Davidson CEO, and former COO of Johnson Controls Inc. (JCI), has been awarded a compensation package totaling approximately $6.4 million for his participation in Harley-Davidson operations from May 2009 through the end of that year. When given the company's downward slide through 2009, and in consideration of tough times ahead for those who survive on high-end discretionary spending, might there be cause to wonder if Mr. Wandell's compensation package is just a tad excessive?

If you were to calculate a headlines/efficacy ratio for government and corporate leaders, executive pay czar Kenneth Feinberg would have to rank pretty high on the "most press for least accomplished" list.

Now that Bank of America (BAC) and Citigroup (C) are out from the somewhat watchful eye of Mr. Feinberg, he has only American International Group (AIG), the car companies, and GMAC to meddle with at little benefit to anyone.

So what does he do to keep himself occupied? He chats on the phone with Goldman Sachs (GS) CEO Lloyd Blankfein about how that company can better align pay for its executives, even though he has no authority over -- or interest in -- that company's policies.

Now here's a story that's all about high finance. JPMorgan Chase & Co. (JPM) earned $11.7 billion last year and paid out $26.9 billion in compensation, up 18% from the previous year. Employees on average earn $129,000, while investment bankers earned on average $380,000.

JPMorgan said it hopes to restore its dividend to 75 cents or $1.00 per share by the middle of 2010. This means that if you're a shareholder and you were waiting for a dividend increase, forget about it. Your dividend was used up in the $26.9 billion that went to compensation.

For more than a third of private equity employees, employee compensation either stayed the same or declined. A recent report by alternative investment research firm Preqin estimates that 38% of private equity employees saw base salary freezes in 2009, and 6% of firms participating in the survey indicated that they were cutting salaries this year. Of course, this means that 56% kicked base salaries up this year, though the average increase was a mere 2%.

For the employees of 22% of the firms participating in the Preqin survey, the brush with a pay cut was close as these companies considered a freeze. But 40% haven't cut or never considered it.

It's easy to save the world when you've already taken care of yourself. But, we rely on these mavericks -- the wealthy who realize they can make a difference -- to do what we cannot on our own. So, it comes as a relief that Bill Gates, founder of Microsoft (MSFT) believes executive compensation is still too high.

It's a murky topic, and some forms of regulation, Gates believes, won't help. In a discussion on philanthropy at the 92nd Street Y in Manhattan, where many of the people Gates criticized send their kids for early education, the former CEO and still rich guy cites the $1 million executive salary cap required by law in 1993 as a big mistake. While compensation has to be controlled, he believes this measure backfired and thinks that other, similar efforts are doomed to fail now.

Freddie Mac has a new CEO CFO and his name is Ross Kari. Can you guess his compensation? Is it reasonable in light of the fact that Freddie Mac is controlled by the government?

In these days when we have 5.4 million people who have been on unemployment for at least six months, Kari's compensation is $5.5 million, which includes $2 million as a signing on bonus and a generous salary of $2.3 million.

Intel's announcement that it plans to freeze senior top executives salaries and revise its option pricing may is another cost-containment step by the company -- but one nevertheless not without some unanswered questions.

That's because although Intel (NASDAQ: INTC) said it would not grant raises to top professionals including CEO Paul Otellini and CFO Stacy Smith, Bloomberg News reported Monday, the proposed action, if approved by shareholders, will also allow employees to exchange underwater stock options for ones with a lower exercise price.

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.