Magazine article The American (Washington, DC)

What You Don't Hear about CEO Pay: Before Increasing Regulations on Corporate America, U.S. Lawmakers Should Get the Full Story on Executive Compensation

Magazine article The American (Washington, DC)

What You Don't Hear about CEO Pay: Before Increasing Regulations on Corporate America, U.S. Lawmakers Should Get the Full Story on Executive Compensation

Article excerpt

A recent study by Watson Wyatt Worldwide consultants Ira T. Kay and Steven Van Putten should be mandatory reading for all U.S. lawmakers eager to slap new federal regulations on CEO pay.

Amid much howling about boardroom cronyism and corporate greed, Kay and Van Putten help put executive compensation in perspective. They show that the current system--the "pay-for-performance" model--is working effectively: in other words, "pay levels track corporate performance." Are there instances where certain executives are wildly overpaid? Of course. But Kay and Van Putten reckon that such anomalies can be addressed "without regulating the overall market and abandoning the core model of pay-for-performance." Indeed, "various external and competitive pressures already work effectively to reform executive pay practices over time."

Kay and Van Putten analyzed "the relationship between the total return to shareholders generated by companies and the related stock option compensation for executives. A review of the largest 1,088 companies in the United States in 2006 shows that the higher-performing companies provided larger stock option profits to executives and the largest increase in stock option profits over the prior year. Thus, executives in companies that performed well were rewarded for that better performance."

[ILLUSTRATION OMITTED]

While executive compensation packages often seem exorbitant, "CEO pay is a very small part of the overall cost structure of companies. …

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