Put caps on corporate compensation

Tom Campbell

• published March 30, 2009 12:15 am

The gap between compensation of corporate executives and average
workers has escalated faster than a space shuttle launch. A 2001
Business Week article revealed that in 1980, Chief Executive Officers
made 40 times as much as the amount the average worker earned. By 1994
that spread had increased to 84 times. By 2000 it was 475 times as
much. Are Chief Executives 435 times smarter than in 1980? Are these
companies so much better managed? Why this rapid acceleration in
compensation?

Look to corporate boardrooms first. You might be
naïve enough to believe corporate directors are selected by
shareholders, and while it is true that shareholders vote on them, the
selections are made by corporate executives and other board members.
These recommendations are, with few exceptions, approved.

Serving
on corporate boards has become lucrative. Handsome five-figure fees for
attending board meetings, meetings held in resort locations, tickets to
a myriad of events, and even use of the corporate jet for personal
travel are the perks for serving. It is a nice gig if you can get it.
Corporate executives go to great lengths to pamper their boards because
the boards set executive salaries, bonuses and other compensation.

The
execs have a large role in picking and pampering the board and the
board picks and pays the execs and both look after the other in this
good-ole-boy insider club. Board members and execs will tell you they
are being compensated for results. While partially true, the yardstick
is generally short-term profits, quarterly dividends, and stable to
rising stock prices. Nobody asks many questions in good times.

But
what happens when the executives and their boards make dumb decisions,
like buying an out-of-control mortgage company all the way across the
country or taking on a derivative-laden, sick-to-almost-dead brokerage
house that insists on rewarding huge bonuses to those who almost killed
it? When corporations get in trouble they typically fire large numbers
of employees, cut the shareholder dividends, maybe even reduce benefits
to retirees, but little happens to those responsible for those
decisions. The execs are supposed to keep their salaries and expect to
receive their bonuses, especially important since stock options are no
longer attractive due to the tanking of stock prices.

Shakespeare
never wrote a farce more ludicrous than what is going on in corporate
America. It is time corporate boards start doing their fiduciary jobs
of asking tough questions, performing due diligence, holding executives
accountable, firing those who jeopardize the business and taking
control of this out-of-control compensation of executives.

The
argument that executive talent is scarce and we have to pay top
salaries to keep top talent is equally flawed. Forgetting for a moment
their recent performance, corporate America didn’t have a problem
finding top executive talent in 1980 when the CEO was paid 40 times
more than the average worker. Maybe we need to institute a salary cap
like baseball and football have done. Executives need to be fairly
compensated, as do boards of directors, but shouldn’t that be a two-way
street? If corporations don’t get executive compensation under control
we are betting consumers and shareholders are upset enough to do the
job for them.

Tom Campbell is former assistant North Carolina
State Treasurer and is creator/host of NC SPIN, a weekly statewide
television discussion of NC issues airing Sundays at 6 a.m. on WLOS-TV.
Contact him at www.ncspin.com.