Business Services Industry

Execs divided on compensation

Chief Executive, The, April, 2005

OVERALL CONFIDENCE remains at high levels, but chief executives overwhelmingly do not believe that the issue of how they are paid is presented fairly to the general public.

The benchmark CEO Confidence Index jumped 6.6 points in March to 170.1 after pausing in recent months. That represents big gains since the index was launched in October 2002 at 100 (see chart, top).

The gap between Current Confidence and Future Confidence, which are components of overall confidence, remained wide, suggesting CEOs see current conditions as very favorable but that they are worried about longer-term trends. Current Confidence shot up 11.2 points to 193.6 while Future Confidence increased by a mere 3.5 points to 154.2.

A solid 65 percent of 458 email respondents to this month's bonus question said CEO compensation is not well-understood when compared with the money that actors and entertainers make (see chart, middle). They also agreed that very few of them controlled their own compensation levels, debunking a popular myth (see chart, bottom).

But beyond that, there was little accord. Naturally, many CEOs defended the way they are compensated. "CEOs create value, preserve jobs and strengthen communities by providing leadership to organizations," said Jeffrey Evans, CEO of The Will-Burt Company in Orrville, Ohio. "I believe CEOs get a bad rap based on the notable excesses touted in the press. But the majority of executive compensation is certainly much more reasonable."

J. Laws, chief operating officer of Wilbur Curtis in Montebello, Calif., agreed, saying, "Executive compensation is rarely presented in the context of corporate value creation."

But some respondents felt that the system of CEO compensation has not worked properly. "I think there are a number of CEOs who are paid way too much, given the returns they give shareholders--sometimes even when they have good returns to the shareholder," wrote James L. Packard, chairman and CEO of Regal-Beloit Corp. in Beloit, Wis. "Executive compensation is based on a flawed system."

A spokesperson for a company in Pennsylvania who wants to remain anonymous agreed: "Compensation levels are at inappropriate levels and have been for well over 15 years for all professions." High pay packages reflect "pure greed." "Doing your job at a world-class level is one's responsibility, not taking home compensation levels that are way out of control," he added.

Without taking a position on whether CEOs are paid too much, Krishna Srinivasan, president of Frost & Sullivan, argued that changes in the compensation system are needed. "Executive compensation needs to be tied more to the sustainable impact on the bottom line of the company," said Srinivasan, who is based in San Antonio, Tex. "The CEO's job is to position the company for sustainable strong performance over time, rather than to devise ways of driving the stock price up in the near term, often by manipulating Wall Street."

As on many other issues, CEOs are passionate about the compensation issue but can find little common ground.