Chief executives more likely to be blind to excessive pay

Apr 21 2006 by Nic Paton Print This Article

Boardroom compensation committee members are more likely to believe chief executives are frequently paid excessive amounts than CEOs themselves, according to a new survey.

The U.S study by Steven Hall & Partners, an independent executive compensation consultancy, found that just 3.4 per cent of chief executives felt excessive CEO pay occurred frequently.

By comparison, 14 per cent of compensation committee members said it did.

In fact, the vast majority of committee members 85 per cent believed there was evidence of excessive CEO pay, against just 41 per cent of chief executives.

"These conflicting views suggest that compensation committee members are awake to the pay versus performance issue and their responsibility to exercise independent oversight," said Steven Hall, managing director of Steven Hall & Partners.

"While it is human nature for CEOs to consider themselves fairly paid, the fact that compensation committee members have a different perspective is a positive sign in the re-balancing of power within the corporation," he added.

When asked if they felt there should be any pre-determined limits on CEO pay, a quarter of compensation committee members answered "yes" compared with just 18 per cent of CEOs.

Among those in both groups who favoured limits, however, 32 per cent indicated that the board should set any limits imposed.

A total of two per cent or fewer of either group favoured giving control to Congress, the Securities and Exchange Committee or shareholders.

Both groups were also resoundingly against executive pay being subject to shareholder approval, (92 per cent of CEOs and 78 per cent of committee members).

As one committee member put it: "Oversight is the responsibility of the board acting on behalf of, not directed by, the shareholders."

A third of compensation committee members, nearly double the percentage of CEOs, favoured a legislative provision limiting the funding of non-qualified pension benefits for senior executives in certain circumstances.

The restriction is part of the proposed U.S pension overhaul that would keep financially troubled companies with under-funded employee pension plans from setting aside funds for senior executive non-qualified pension benefits.

A similar pattern emerged in responses to questions about CEO severance packages.

Nearly a quarter (24 per cent) of compensation committee members believed CEO severance packages should be subject to shareholder approval during the regular course of business, compared with 14 per cent of CEOs.

Nearly 40 per cent of compensation committee members believed shareholders should approve CEO severance packages in change of control situations, against 21 per cent of CEOs.

"There's a healthy tension emerging between compensation committee members and senior management," said Steven Hall, "which is good news for corporate governance, corporate performance and shareholders."