Pay-Day, Pay-Day

I was certainly heartened to read that, despite all the  recent economic sturm und drang, CEO pay continues to rise. AP broke the good news on June 15th, and just in case you missed the story, the median pay for S&P 500 CEO's was $8.4 million in 2007, a walking-around-money increase of $280K over 2006.

There was not that much info on those poor schnooks who came in below the median, although for two were mentioned.

The Chief Exec of XL Capital made $7.5 million, a 23 % increase over the prior year, and not bad considering that the company's profits tumbled by 80% and its stock priced dipped by 30%

The other underachiever cited was the head of Dillard's Department Stores. Their guy, William Dillard found his pay cut by 2/3rd's, and took home a meager little pay packet with only $1.1 million in it. The pay cut was an apparent result of Dillard's overall poor performance, which makes them something of an anomaly among large companies. Of course, for someone named Dillard who's running Dillard's, there may be other compensations. (Personalized shopping bags!) And as for the piddly pay: everyone knows retail pays lousy.

Mostly, the story in 2007 was more of what we've come to expect from the world of executive pay: the definition of performance is spongy and elastic.

"Compensation has become a shell game," said Richard Ferlauto, director of pension and benefits policy for the American Federation of State, County and Municipal Employees, a Washington labor group representing government workers.

"So they take away the bonus," he said, "but then they still come up with ways to make sure the executive gets a big payout."

But, hey, Ferlauto works for a union. What do we expect him to say?

Maybe he just doesn't understand how GM can lose $39 billion, shut down a bunch of plants that employ a lot of working stiffs, and watch its stock price keep falling, and still give their head guy a 64% pay raise.

Of course, Rick Wagoner's compensation of $15.7 million, while well above the median, isn't all that rich a pot. The top four leaders of the pack have packages over $50 million.

Overall, AP's analysis of CEO compensation found that it "rose and fell regardless of the direction of a company's stock price or profits." They've also found that, in general, executive pay is somewhat kinked. If exogenous events - say, the rise in fuel prices - result in strong results for a company, the CEO benefits even if he/she (it's still mostly he!) had nothing to do with it. On the other hand, when company performance is bad, CEO's often manage to deflect accountability. And, overall, the compensation committee finds ways to help their buddies along.

In one company, the CEO's bonus is based on a cut of the profits. Since there were no profits, the exec was given a hefty bonus for hitting softball objectives like an increase in customer satisfaction and "developing senior leadership."

"The cracks in the idea of pay for performance really start to show when performance falters but pay still rises," said Paul Hodgson, senior research associate at The Corporate Library, an independent corporate governance research firm. "It's always a win-win scenario for executives."

When I worked at Genuity, I was a director - the level at which bonus pay could get more interesting. Given the year we were having my first year there, I was sure that the bonus would not materialize.

Rest assured, I was told, we'll get it.

As it turned out, the senior execs decided on the level at which the bonuses would get paid out to directors and VPs - which used the same formula that determined what their bonus would be (obviously, theirs were of a higher magnitude). Sure enough, despite a lousy year, I got my 40% bonus.

In no way would I ever make the argument that pay structures should be completely flattened out. The CEO should make more than the receptionist and a customer support rep. But it has to be completely demoralizing for those who are getting no raises; who are nickeled and dimed when it comes to how their bonuses are granted; or are getting pink slips, when they see that those in leadership positions manage to cash in big time even when they're presiding over a sinking ship.