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. These liberals are out of control. They want to drive our economy into the ground and double and triple our electric bills. Sierra Club, stay out of Indy!

  2. These activist liberal judges have gotten out of control. Thankfully we have a sensible supreme court that overturns their absurd rulings!

  3. Maybe they shouldn't be throwing money at the IRL or whatever they call it now. Probably should save that money for actual operations.

  4. For you central Indiana folks that don't know what a good pizza is, Aurelio's will take care of that. There are some good pizza places in central Indiana but nothing like this!!!

  5. I am troubled with this whole string of comments as I am not sure anyone pointed out that many of the "high paying" positions have been eliminated identified by asterisks as of fiscal year 2012. That indicates to me that the hospitals are making responsible yet difficult decisions and eliminating heavy paying positions. To make this more problematic, we have created a society of "entitlement" where individuals believe they should receive free services at no cost to them. I have yet to get a house repair done at no cost nor have I taken my car that is out of warranty for repair for free repair expecting the government to pay for it even though it is the second largest investment one makes in their life besides purchasing a home. Yet, we continue to hear verbal and aggressive abuse from the consumer who expects free services and have to reward them as a result of HCAHPS surveys which we have no influence over as it is 3rd party required by CMS. Peel the onion and get to the root of the problem...you will find that society has created the problem and our current political landscape and not the people who were fortunate to lead healthcare in the right direction before becoming distorted. As a side note, I had a friend sit in an ED in Canada for nearly two days prior to being evaluated and then finally...3 months later got a CT of the head. You pay for what you get...

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