New York Times Editorial - Executive compensation
New York Times Editorial - Executive compensation
Copyright by The New York times
THURSDAY, APRIL 27, 2006
To fix something, first you have to understand what went wrong. That's especially true for a problem as complex yet pervasive as sky-high executive compensation.
The New York Times recently reported that in 2004, the average top executive at a big company earned 170 times the average worker's pay. These executives receive a dizzying combination of salaries, bonuses and stock grants. To make the decisions on executive pay, many companies create compensation committees drawn from the board of directors. That committee in turn is advised by outside consultants, experts in how much others in the field are getting paid.
It looks quite logical at first glance. It is in the details that the value of closer scrutiny becomes clear. Here, for example, is how one company, Verizon Communications, decided what to reward its chief executive, Ivan Seidenberg. The outside consultants who advise Verizon, Hewitt Associates, do loads of other business for the company. The company has racked up more than half a billion dollars in revenue from Verizon and its predecessors since 1997.
Though the company says it has strict policies to maintain objectivity, Hewitt has a strong incentive not to rock the boat by offending Verizon executives. The end result is predictable. Seidenberg received a package worth $19.4 million last year, as his shareholders felt the pinch of a stock that fell 26 percent.
Runaway pay matters because top executives are snatching more than their fair share of corporate proceeds. More important, it also means that the board of directors is not performing its function as internal guardian of the company's health.
To fix something, first you have to understand what went wrong. That's especially true for a problem as complex yet pervasive as sky-high executive compensation.
Copyright by The New York times
THURSDAY, APRIL 27, 2006
To fix something, first you have to understand what went wrong. That's especially true for a problem as complex yet pervasive as sky-high executive compensation.
The New York Times recently reported that in 2004, the average top executive at a big company earned 170 times the average worker's pay. These executives receive a dizzying combination of salaries, bonuses and stock grants. To make the decisions on executive pay, many companies create compensation committees drawn from the board of directors. That committee in turn is advised by outside consultants, experts in how much others in the field are getting paid.
It looks quite logical at first glance. It is in the details that the value of closer scrutiny becomes clear. Here, for example, is how one company, Verizon Communications, decided what to reward its chief executive, Ivan Seidenberg. The outside consultants who advise Verizon, Hewitt Associates, do loads of other business for the company. The company has racked up more than half a billion dollars in revenue from Verizon and its predecessors since 1997.
Though the company says it has strict policies to maintain objectivity, Hewitt has a strong incentive not to rock the boat by offending Verizon executives. The end result is predictable. Seidenberg received a package worth $19.4 million last year, as his shareholders felt the pinch of a stock that fell 26 percent.
Runaway pay matters because top executives are snatching more than their fair share of corporate proceeds. More important, it also means that the board of directors is not performing its function as internal guardian of the company's health.
To fix something, first you have to understand what went wrong. That's especially true for a problem as complex yet pervasive as sky-high executive compensation.
posted by Carlos T Mock at 7:39 AM
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