Boards to Execs: You're Not Worth It

Compensation for top management should and will fall over the next two years, board members predict.

David McCann
- CFO.com | US

May 6, 2009

Amid shareholders' mounting rage over what they see as wantonly
excessive compensation for underperforming executives, defenders of
high pay have had one steadfast rebuttal: It's needed to retain top
management talent.

But corporate boards, it seems, aren't buying it. In a survey of
board members released Tuesday by consulting firm Watson Wyatt,
relatively few of the 85 participants were worked up over the prospect
of losing company leaders. Only 31% expressed significant or great
concern about management retention; the rest registered moderate,
small, or no concern.

Yet 63% agreed or strongly agreed that American companies in general
should change their executive compensation plans in response to
pressures from the financial crisis and the new pay regulations for
government-aided companies, which indeed seem to be spilling over to
the corporate community at large. Only 22% disagreed that such changes
are warranted.

Thirty-four percent said their companies have already reduced
executive salaries, target bonuses, or long-term incentive awards. But
the survey asked participants separately whether they believe pay
opportunities will decline over the next two years from where they are
now, and 70% said they will.

The question is whether board attitudes will shift again as the
recession slackens. Right now, said Ira Kay, Watson Wyatt's global
director of executive compensation, there is very little voluntary
turnover at the executive level, so throttling down pay levels is a
fairly easy decision. "Directors are being pragmatic, saying they'll
worry about turnover when it happens," Kay told CFO.com.

For most companies, placing a low priority on executive retention
makes sense for another reason, suggested Keith Hall, a former CFO of
Lending Tree who sits on the boards of two public and three private
companies, two compensation committees and one governance committee.
"Executives are like the general population — there is a distribution
curve," he said. "There is a big blip of people in the middle who are
average. The ones who are excellent are in the little tail off to the
right. Those are the ones you should be concerned about losing."

For example, about Jack Welch, who created tremendous shareholder
wealth during his 20 years at the helm of General Electric, Hall said,
"He was paid extremely handsomely, and I would not deny him one penny."
Hall's chief

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Posted by Dan Walter

Performensation: Equity Compensation for High Performance Companies.