IBJOpinion

EDITORIAL: Executive pay policies, not salaries, need reform

IBJ Staff
May 29, 2010
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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.•

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

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  1. Great article and post scripts by Mike L (Great addition to IBJ BTW). Bobby's stubborn as a mule, and doubt if he ever comes back to IU. But the love he would receive would be enormous. Hope he shows some time, but not counting on it.

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  4. Jim, your "misleading" numbers comment is spot on. This is the spin these posers are putting on it. News flash, fans: these guys lie. They are not publicly traded so no one holds them accountable for anything they say. The TV numbers are so miniscule to begin with any "increase" produces double digit "growth" numbers. It's ridiculous to think that anything these guys have done has awakened the marketplace. What have they done? Consolidate the season so they run more races on consecutive weekends? And this creates "momentum." Is that the same momentum you enjoy when you don't race between August and March? Keep in mind that you are running teams who barely make ends meet ragged over the summer to accomplish this brilliant strategy of avoiding the NFL while you run your season finale at midnight on the East Coast. But I should not obfuscate my own point: any "ratings increase" is exactly what Jim points to - the increased availability of NBC Sports in households. Look fans, I love the sport to but these posers are running it off a cliff. Miles wants to declare victory and then run for Mayor. I could go on and on but bottom line for God's sake don't believe a word they say. Note to Anthony - try doing just a little research instead of reporting what these pretenders say and then offering an "opinion" no more informed than the average fan.

  5. If he's finally planning to do the right thing and resign, why not do it before the election? Waiting until after means what - s special election at tax payer expense? Appointment (by whom?) thus robbing the voters of their chance to choose? Does he accrue some additional financial advantage to waiting, like extra pension payments? What's in it for him? That's the question that needs to be asked.

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