CEOs cash in, but how many are worth $100 million

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Author: Unknown

Section: News, Pg. 10a

Last week's analysis of CEO pay in USA TODAY raises an obvious question: Why commit fraud when you can commit executive compensation?

These days, some CEOs are taking home nine-figure sums without putting themselves in any legal jeopardy. They simply get compliant boards to approve lavish pay packages and then reap the rewards.

At least a dozen chief executive officers received $100 million or more last year as part of an overall surge in pay that began in the 1990s. In 2005, the median package among the nation's 100 largest companies soared 25% to $17.9million, dwarfing the 3.1% average gain by typical U.S. workers.

Some top athletes and entertainers make similar amounts, of course. But their worth is determined by ticket sales, not by how many cronies they can appoint to committees that set their pay.

By any measure, executive pay has reached absurd levels. Top executives in the USA get far more than their counterparts abroad. In many cases, their pay isn't even related to performance. What's more, top executives are pulling in several hundred times the pay of rank-and-file workers after decades when that ratio stayed in the range of 50 to 75.

This level of compensation shows how little input the owners of companies -- the shareholders -- have in management decisions. It also undermines employee morale and invites a political backlash.

Some of those with the biggest 2005 payouts benefited from surging stock prices. Bruce Karatz, CEO of KB Homes, for example, exercised $118.4 million in options after his company's stock jumped fivefold in six years. Payouts like these are the easiest to justify because investors did well. But, in truth, virtually all homebuilding companies have prospered during the real-estate boom.

Harder to rationalize are the big paydays for less stellar performers. Investors in Cendant have known little but misery. Yet CEO Henry Silverman took home $133 million from pay, bonuses and options last year while his company, a diverse real estate and travel conglomerate, lost 21% of its value.

Also hard to justify are pricey "golden parachutes" paid to CEOs who relinquished their positions as the result of mergers or acquisitions. These payments are, at bottom, admissions that CEOs who give up their jobs are unlikely to find comparable pay elsewhere.

Companies often justify their bloated pay by arguing that relatively few executives exist with top-level credentials. But companies that have tried to keep their salaries within reasonable limits have hardly been punished.

For example, James Sinegal, CEO of Costco Wholesale Corp., makes considerably less than do most of his peers. Yet Costco shares have prospered. Even more remarkable is the success of upscale grocer Whole Foods Markets. A $10,000 investment in this company a decade ago is now worth more than $140,000. Yet CEO John Mackey and other executives there make less than $1 million a year apart from their soaring stock.

But Sinegal and Mackey are exceptions. Until corporate boards put shareholder interests above crony capitalism, investors will suffer. The Securities and Exchange Commission has proposed greater disclosure on compensation. That's helpful. Better still would be to give shareholders greater power to choose directors who represent their interests, and to oust those who do not.

(c) USA TODAY, 2006