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GayPASG
Acton Alert: I have been interested to do something about this for
a long time and would like to hear from any of you that would like to get
involved in a group to work on this issue on a continuing basis. If you
are interested, send me a simple message to be added to the list and we will get
back to you.
Thank you,
John
Crowell Campbell
A Cozy Arrangement
EDITORIAL, NYTimes on
the Web, April 13, 2006
To fix something, first you have to
understand what went wrong. That's especially true for a problem as complex yet
pervasive as sky-high executive compensation.
Last Sunday The Times reported that in 2004, the average top executive at a big
company earned 170 times the average worker's pay. These executives
receive a dizzying combination of salaries, bonuses and stock grants. And
their perks can go far beyond the use of a company car to even include infusions
of cash to offset the taxes everyone else is expected to pay.
In many cases, the process that led to these out-of-kilter salaries has a
chilling resemblance to corporate scandals in Wall Street stock research and
accounting industry audits. In an era of bigger-is-better consolidation,
the goal for many businesses was to find synergies, to provide so-called
integrated solutions or one-stop shopping. But when one of the services
being purchased requires impartial advice, conflicts arise. If a firm that
promises to do objective financial statements is also attempting to woo the
client it is auditing into other kinds of deals, the temptations are obvious.
It is just as true for human resources. To make the decisions on executive
pay, many companies create compensation committees, drawn from the board of
directors. That committee in turn is advised by outside consultants,
experts in how much others in the field are getting paid. It looks quite
logical at first glance. It is in the details that the value of closer
scrutiny becomes clear.
Earlier this week Gretchen Morgenson explained in this newspaper how just one
company, Verizon Communications, decides what to reward its chief executive,
Ivan Seidenberg. It offers an illuminating look at a system gone
completely haywire. The outside consultants who advise Verizon, Hewitt
Associates, do loads of other business for the company. Among other
things, Hewitt operates Verizon's employee benefits Web sites and performs
actuarial work for three of the company's pension plans. The company has
racked up more than half a billion dollars in revenue from Verizon and its
predecessors since 1997.
Though the company says it has strict policies to maintain objectivity, Hewitt
has a strong incentive not to rock the boat by offending Verizon executives.
The end result is predictable. Mr. Seidenberg received a package worth
$19.4 million last year, as his shareholders felt the pinch of a stock that fell
26 percent.
Runaway pay matters because top executives are snatching more than their fair
share of corporate proceeds. More important, it also means that the board
of directors is not performing its function as internal guardian of the
company's health.
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