Matching CEO Salaries To Company Performance
Friday, March 31, 2006SUSIE GHARIB: Chances are, you didn't see your pay rise by 11 percent last year, or by 30 percent the year before. But many of America's top executives did. Soaring CEO pay has long been a sore spot for many investors.
Now, as Stephanie Dhue reports, there's a new move to tie CEO pay to performance.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Seventeen million dollars. No, not for Serena Williams, that's what the CEO of AT&T (T) was paid the last year. Serena made just under $13 million.
With pay packages in the celebrity range, shareholders activists say most CEO's just aren't worth it.
NELL MINNOW, EDITOR & FOUNDER, THE CORPORATE LIBRARY: The return on investment for CEO pay packages is somewhere less than a piggybank, so I think that we have to start looking at this pay package the same the way look at any other allocation of corporate assets, and we would not find tolerable for any other outlay of money.
DHUE: In a new report, The Corporate Library compared CEO pay for the last two fiscal years with the stock's five-year rate of return. For example, Lucent (LU) CEO Patricia Russo was paid over $17 million for the last two years, while Lucent's five-year return to shareholders was minus 80 percent. Home Depot's CEO, Robert Nardelli, made $50 million while the company's stock returned a negative 19 percent. Pfizer's (PFE) Hank McKinnell was paid more than $26 million, Pfizer's stock is down 34 percent. Company boards are under increasing pressure to better tie pay to performance.
Sixteen percent of companies in the S&P 500 now have corporate governance rules letting majority vote of shareholders remove board members.
TED WHITE, COUNCIL OF INSTITUTIONAL INVESTORS: It raises the level of accountability of boards to shareholders, to owners, and that includes compensation committees, and that's why investors are so laser-focused on it.
DHUE: CEO pay is also under pressure from the Securities and Exchange Commission. The SEC is considering new disclosure rules so investors will have a clearer picture of the pay and perks top executives receive.
CHRISTOPHER COX, CHAIRMAN, SECURITIES AND EXCHANGE COMMISSION: The better we get at aligning compensation packages with the performance of the company, the more justified we will be in saying that individual is worth it.
DHUE: CEO tenures now average less than five years, making it likely executives will want to maximize their pay. Experts say, as long as most investors go along with company management, CEO salaries will stay at celebrity levels.
Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
