The Billion-Dollar
Brushoff
EDITORIAL, NYTimes on
the Web, April 12, 2007
If there is a single, logical
justification for the wild executive compensation packages that have become
standard at large American companies, it is performance. In too many
cases, pay has little or nothing to do with results, and some of the most
jaw-dropping packages are for executives who have been told to hand over the
reins.
This pay-for-failure is embodied by the $210 million package given Robert
Nardelli, the former Home Depot chief executive. As Eric Dash reported
recently in The Times, including Mr. Nardelli’s rich goodbye on the first
workday of 2007, 36 chief executives ousted last year walked out with over a
billion dollars between them. Mr. Dash points out that Hank McKinnell left
as chairman and chief executive at Pfizer with an exit package worth nearly $200
million despite the fact that the company’s market capitalization dropped by
over $137 billion while he was in charge.
And none of this takes into account the many excessive pay packages for
executives clinging to their jobs with the help of compliant boards of
directors, or those who received incentive-based pay thanks to inaccurate
financial results. It is encouraging to see more companies adopting
so-called claw-back provisions that help them get bonuses back after relevant
misstatements come to light.
These multimillion-dollar sendoffs and mistakes must get pretty confusing for
average workers who hear time and again that their wages cannot rise without
making the company uncompetitive. Widespread revulsion at the growing
disparity between the very richest members of society and everyone else has
helped focus attention on ways to rein in executive pay.
Representative Barney Frank, chairman of the House Financial Services Committee,
has proposed legislation that would give shareholders a nonbinding vote on
compensation for top executives, similar to a rule in Britain. Executives
there receive less on average than in the United States, though the gap has been
narrowing. Giving the owners of a company a voice on how much management
receives, even an advisory one, could put the brakes on some of the worst
packages. And maybe it could help end the practice of excessive pay just
to go away.
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