IBJOpinion

EDITORIAL: Executive pay policies, not salaries, need reform

IBJ Staff
May 29, 2010
Back to TopCommentsE-mailPrintBookmark and Share
IBJ Editorial

Comparing compensation, executive or otherwise, is rarely a satisfying exercise. IBJ has been tracking pay among Indiana public company executives for years, and in good times and bad, the conclusion is always the same: Executive pay is out of whack relative to most wage-earners, but, for competitive reasons, the salty amounts are justified.

This year was no different. Our analysis of 2009 executive pay that ran in last week’s paper, and is available here, showed precious little suffering among public-company executives in spite of the worst economic crisis since the Great Depression.

More than half saw their pay fall, but only 10 saw cuts of more than $1 million. And for almost every one of those who suffered a pay cut, one of their peers saw a pay increase. Some of them, 17 to be precise, saw their compensation increase more than $1 million.

Are the amounts too high? Yes. As one observer told our reporter, “A person can live a pretty nice life on $200,000 a year.”

But some perspective is in order.

The packages on our list range from more than $16 million a year to just more than $800,000 a year. Those are big numbers, but they’re not out of line compared to the paychecks drawn by many professional athletes, whose salaries routinely exceed $10 million and whose performance doesn’t affect thousands of jobs and untold numbers of investment portfolios.

Executives make what they make because that’s what the market will bear and that’s what competition for talent demands.

Regardless, in the wake of a recession blamed largely on Wall Street, boards need to act. But reducing executive pay shouldn’t be their primary objective. Smaller compensation packages should merely be the byproduct of a broader goal: sending the right message to employees, shareholders and the market at large about cost-efficiency and fairness.

Steps such as separating the role of chairman and CEO are a good first step. When the CEO runs meetings, the board is less likely to make tough decisions about compensation.

There are other issues with CEO involvement in pay decisions. At Eli Lilly and Co.’s annual meeting this year, one proposal would have prevented current or former public-company CEOs from serving on Lilly’s compensation committee. Proponents of the measure, which was rejected, said CEOs can’t be objective in determining pay because CEO compensation is often based on what peers earn.

Those are valid points that should be taken seriously. If company boards don’t address such issues, others will. Financial-reform legislation pending in Congress includes provisions that would restrict compensation-committee membership to independent directors. It also would give shareholders an advisory vote on executive pay.

We don’t disagree with those measures, but we’d prefer that companies themselves, not government, take steps to make sure pay is fair. We agree that pay has to be competitive. But the method for determining it must also be above reproach.•

__________

To comment on this editorial, write to ibjedit@ibj.com.

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. I am not by any means judging whether this is a good or bad project. It's pretty simple, the developers are not showing a hardship or need for this economic incentive. It is a vacant field, the easiest for development, and the developer already has the money to invest $26 million for construction. If they can afford that, they can afford to pay property taxes just like the rest of the residents do. As well, an average of $15/hour is an absolute joke in terms of economic development. Get in high paying jobs and maybe there's a different story. But that's the problem with this ask, it is speculative and users are just not known.

  2. Shouldn't this be a museum

  3. I don't have a problem with higher taxes, since it is obvious that our city is not adequately funded. And Ballard doesn't want to admit it, but he has increased taxes indirectly by 1) selling assets and spending the money, 2) letting now private entities increase user fees which were previously capped, 3) by spending reserves, and 4) by heavy dependence on TIFs. At the end, these are all indirect tax increases since someone will eventually have to pay for them. It's mathematics. You put property tax caps ("tax cut"), but you don't cut expenditures (justifiably so), so you increase taxes indirectly.

  4. Marijuana is the safest natural drug grown. Addiction is never physical. Marijuana health benefits are far more reaching then synthesized drugs. Abbott, Lilly, and the thousands of others create poisons and label them as medication. There is no current manufactured drug on the market that does not pose immediate and long term threat to the human anatomy. Certainly the potency of marijuana has increased by hybrids and growing techniques. However, Alcohol has been proven to destroy more families, relationships, cause more deaths and injuries in addition to the damage done to the body. Many confrontations such as domestic violence and other crimes can be attributed to alcohol. The criminal activities and injustices that surround marijuana exists because it is illegal in much of the world. If legalized throughout the world you would see a dramatic decrease in such activities and a savings to many countries for legal prosecutions, incarceration etc in regards to marijuana. It indeed can create wealth for the government by collecting taxes, creating jobs, etc.... I personally do not partake. I do hope it is legalized throughout the world.

  5. Build the resevoir. If built this will provide jobs and a reason to visit Anderson. The city needs to do something to differentiate itself from other cities in the area. Kudos to people with vision that are backing this project.

ADVERTISEMENT