CEOs gone wild, cont'd

Lee Drutman: CEOs gone wild, cont’d
Providence Journal
07:23 AM EST on Thursday, January 11, 2007
BERKELEY, Calif.

And so the saga continues. For the latest installment of “greedy CEOs gone wild,” we bring you outgoing Home Depot Chief Executive Officer Robert Nardelli, who managed to somehow finagle a $210 million severance package after a troubled six-year period during which the company’s stock fell 7.9 percent and competitor Lowe’s gained significant market share.

Then again, constructing opulent compensation packages on sand is nothing new to the good folks at Home Depot. Not only was company co-founder Kenneth Langone on the New York Stock Exchange board of directors that awarded Richard Grasso $188 million, but Langone was also Grasso’s staunchest defender. “Dick’s pay is fair and reasonable,” Langone was quoted as saying once Grasso’s fortune became public. Grasso had served as a member of Home Depot’s board of directors.

Though Nardelli still falls short of former Exxon CEO Lee Raymond, who got a record $357 million retirement package in 2005, this latest round of outrage comes at an opportune time for reform. The Democrats are now in control of Congress, and Massachusetts Democrat Barney Frank, a long-time critic of extreme executive compensation, is now chairman of the House Financial Services Committee and seems to be spoiling for a fight.

Last November, he introduced the Protection Against Executive Compensation Abuse Act, to give shareholders the right to review and approve CEO pay plans. He continues to talk tough.

The Nardelli debacle also comes close on the heels of a puzzling pay disclosure about-face at the Securities and Exchange Commission that is further fueling outrage.

Just three days before Christmas, the SEC bowed to corporate pressure and reversed course by allowing companies to delay disclosing stock-option grants, so they can report smaller executive-compensation totals. SEC Chairman Christopher Cox called it “a relative technicality,” but investor advocates knew better. They were up in arms. And Frank seized on the moment, issuing a statement making the case for legislation: “Backtracking by the SEC on this important matter of stock options reinforces my determination that Congress must act to deal with the problem of executive compensation that is now unconstrained by anything except the self-restraint of top executives.”

Of course, to call it self-restraint is a euphemism if there ever was one. Between 1993 and 2003, the percentage of company profits going to the top five executives more than doubled, growing from 4.8 percent to 10.3 percent. In 2004, the median Fortune 500 CEO received compensation worth $15 million. At last count, the average CEO was earning more than 400 times the average of worker pay, and more than 800 times the minimum wage.

One wonders: How much longer can this go on? CEOs taking 10 percent off the top off all corporate profits, making 400 times more than the average worker (a truly remarkable figure, when you consider the fact that in all other advanced industrial countries, the ratio is about 20 to 1).

Congressman Frank’s approach — give the mass of shareholders, the actual owners of the company, some say — makes perfect sense and would probably do a good amount to curb extravagant pay packages. It should hardly be controversial. If a common-sense reform like this, tackling an issue so universally agreed to be a problem, cannot gain traction in a Democratic Congress, then this is more than a case of just CEOs gone wild. It’s a case of narrow corporate interests gone wild in our political system.

http://www.projo.com/opinion/columnists/content/CT_drut11_01-11-07_053NPM1.1f57712.html#