U.S. bosses not worth the money

Feb 10 2006 by Nic Paton Print This Article

When it comes to debate over corporate "fat cats", British and European chief executives have long pointed to the remuneration of their colleagues across the pond as justification for bulging pay packets.

But now Edgar Woolard Jr., former chief executive and chairman of chemicals firm DuPont and current chairman of the New York Stock Exchange's compensation committee, has said U.S chief executives are being paid too much as well.

Woolard told the magazine Across The Board, published by researcher The Conference Board, that the idea that CEO pay is driven by competition is, in effect, "bull".

CEO pay is driven today primarily by outside consultant surveys

He said: "CEO pay is driven today primarily by outside consultant surveys, and by the fact that many board members have bought into the concept that your CEO has to be at least in the top half, and maybe in the top quartile.

"So we have the 'ratchet, ratchet, ratchet' concept. We all understand it well enough to know that if everybody is trying to be in the top half, everybody is going to get a hefty increase every year," he added.

He also dispelled the myth that compensation committees are independent. "I give a 'double bull' to this one," he said.

"It could be that committees are becoming more independent, but over the last fifteen years, they certainly haven't been."

The solution, argued Woolard, was to have an outside consultant who was not allowed to talk to internal people, including the HR vice president and chief executive.

Firms should also insist on pay-for performance, something that "everyone likes to talk about, but no one does", he stressed.

"Boards pay everyone in the top quartile whether they have good performance or bad performance or even if they're about to be fired," he said.

CEOs pointing out how much wealth was created during their tenure was "really a joke", he argued.

"It was born in the 1980s and 90s during the stock-market bubble, when all CEOs were beating their chest about how much wealth they were creating for shareholders ... But what did it do? It set a new level for CEO pay based on the stock-market bubble," he argued.

Finally, he lambasted the idea of generous severance packages for failing.

"Directors who agree to give these huge severance pay packages to CEOs who fail Philip Purcell of Morgan Stanley got $114m (65m), Carly Fiorina of Hewlett-Packard got $20m (11m) why are you doing that? No one else gets paid excessively when they fail. They get fired; they get fair severance," he argued.

"All of this is killing the image of CEOs and corporate executives. When it comes to our image, we're in the league with lawyers and politicians.

"We need the respect of our employees and the general public. And there's a lot of scepticism about leaders in politics and in churches and in the military but we can't have it in the business community because we're the backbone of the market system that has made this country so great and created so many opportunities for people. We can't be seen as either dishonest or greedy," he concluded.