Critics Cite Ways to Curb CEO Paychecks

Well before they left their companies under clouds of suspicion and criminal investigations, Bernard Ebbers of WorldCom, HealthSouth's Richard Scrushy and Enron's Kenneth Lay were all noted for their lavish CEO salaries.

The size and frequency of executive scandals the last several years has put chief executive performance under scrutiny, but the pay scale for corporate titans has continued to soar.

"CEO pay has certainly moved more than anyone else's pay," said Steven Hall, president of Pearl Meyer & Partners, a compensation consulting firm.

The New York-based company estimates CEO compensation climbed 13 percent in 2004 to reach an average of nearly $10 million per year at the nation's top 200 companies ranked by revenues. Ten years ago, that figure was around $3.5 million.

Who Looks Out for Shareholders?

Few question that CEOs hold tremendous sway over the fortunes of their companies. But some shareholders and corporate consultants are beginning to question the lavish pay scales, stock options, pensions and buyout packages.

And it often appears that job performance is not even a factor. Former Hewlett-Packard CEO Carly Fiorina received a welcome package worth nearly $100 million when she joined the company in 1999. When she was fired last year, she reportedly received $21 million in severance -- despite a tenure that included poor revenues and heavy worker layoffs.

Last July, group of Morgan Stanley shareholders sued the company over the multimillion-dollar golden parachutes given to two short-term top executives, including former CEO Phil Purcell. Purcell was reportedly paid more than $106 million on his way out the door, even though the company's stock price has been slumping.

The lavish exit packages of underperforming executives continue to raise eyebrows.

And a recent study by Moody's Investors Service even suggested corporations that pay out extremely high compensation to high-level executives face a greater risk of potential credit default or downgrades in their ratings.

So why are these guys making so much money?

Keeping Up With the Joneses

Some business and compensation consultants believe there is a systemic problem within corporate culture. Companies don't want to lose face by paying executives less than what competitors are paying. Critics say that's led the inflation of executive pay to accelerate much faster than other management positions.

"The mantra of the market drives 90 percent of compensation decisions," Paul Hodgson, a compensation expert with The Corporate Library, a research firm, said in an e-mail interview with

Hodgson, who is also the author of "Building Value Through Compensation," said there were other factors driving executive pay. He said too many companies compare themselves to industry leaders rather than actual peers, often leading to overpaying for a CEO that may be running a much smaller company than a similarly paid competitor.

Pearl Meyer's Hall agreed companies should compare themselves to similar-sized rivals. But he said companies may run the risk of alienating potential candidates as well as driving away current employees.

"There have been companies that have tried to lower their pay scales, and as a result they lost talent completely. People ran out the door," he said. "Salomon Brothers tried it years ago, and they realized that if there are other places for people to go, they'll go."

But not everyone believes that is a significant danger.

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