WSJ watches COX balancing act

Alan Murray last caught my eye for lambasting the SRI/CSR agenda in his opinion piece re. Jeff Immelt's Ecomagination [see posting "Just Imagination?" 5/09/2005]. Yesterday's WSJ had him offering back some bouqets in covering the challenge of CEO pay. [The EconomyBUSINESS: New SEC Chief Tackles a Big One: CEO Pay By Alan Murray890 words 21 September 2005 The Wall Street JournalA2]

It appears while Immelt won the battle for the mantle of head of the world's best run corporation [see Cover story in Barron’s “Real Asset: Barron's survey of the most respected corporations” by Michael Santoli 12 September 2005] but lost in the cash remuneration land grab to 2 peers he beat for the job. GE remains well-respected, and while the jury is still out on ecomagination, even Bill Clinton gave Immlet kudos on Meet The Press Sunday for his role as business leader in leading the USA where the government is failing, like climate change.

Jeffrey Immelt, Robert Nardelli and James McNerney. Mr. McNerney (Boeing Co.) has a package worth some $62 million if he stays for six years, Mr. Nardelli, (Home Depot Inc.), earned $28 million in 2004. Mr. Immelt has total compensation of $8.3 million - though the company has created "performance share units" that will make him wealthy if the company does well enough in the next few years.

Chris Cox as SEC head had taken much heat in parts of the SRI community for the perception that he would not be strong enough advocate for investors [see blog 4 August]. If you had to ask the average professional who Eliot Spitzer was, they would probably tell you. Seeing Spitzer speak at the first NYSSA Corporate Governance conference [Eliot Spitzer and John Bogle Keynote Speakers atNYSSA’s Corporate Governance Conference] in late 2003 it was impressive to see his cross-sector drive to the better interest of the consumer/investor, the person on the weaker side of the business transaction power scale.

But Cox is considered more cautious, and he will prove his own mettle. WSJ's Murray writes
"CHRIS COX ISN'T STARTING out as the capitalists' tool his critics made him out to be... is smart... got good political instincts.

Mr. Cox has directed staff to explore new rules regarding CEO and executive pay. The rules would not directly limit pay - reflecitng some wisdom by from the failed attempt by Government when it imposed a million-dollar cap on tax-deductible pay back in 1993, prompting an explosion of stock options. They are drawing a lesson from the SRI/activist community: sunlight. Judge Brandeis's 1911 comment has long been used in legal circles, and obviously in situations where change is needed (see Let The Sunshine In Joel Makower April 22, 2005)

"Compensation packages for executives have changed dramatically since 1992, when the commission last addressed this topic," Mr. Cox told The Wall Street Journal in an interview published Monday. Better disclosure, he said, "clearly needs to be addressed."

Murray reports that the growth in CEO pay has been "explosive". He writes the median salary and bonus for chief executives at 350 major U.S. companies jumped 14.5% last year to almost $2.5 million, according to analysis by Mercer. My first close examination of CEO pay when I lead Villanova University's first ever team to the inter-MBA Net Impact/Leeds Business Case Compeititon in Boulder and the case was on GSK. The competition allows a week to research the company, then the students are given the case question Friday 7pm for work through the night with delivery by 8am Saturday for presentations through the morning. We guessed that garnier's pay issue would be part of the make-up. Garnier's CEO package had attracted attention in UK from NGO's like AIDS Healthcare Foundation response to news reports of AIDS pharmaceutical giant GlaxoSmithKline's decision to pay its chief executive an annual US$10 million. The good news in 2002 had been that GSK had backed down after shareholders protested the proposal at the AGM. BBC reported following the meeting, the company said in a statement: "After taking into account shareholder views, the company has decided to postpone a decision on the matter".

Murray mixes Gordon Gecko with an attack on corporate governance efforts. He advances 2 reasons: "The first is timeless: Greed. It's still a powerful motivator in human affairs. The second is a direct outgrowth of the reform movement. As the pressures on CEOs increase, their tenures decrease -- usually, because of poor performance. That leaves corporate boards scrambling to find successors, often from the outside. And outsiders tend to cost more than insiders."

The nagging question always is "Is he really worth it?". Murray writes "The day Mr. McNerney's appointment became public, Boeing stock jumped more than $4 a share -- adding more than $3 billion to the wealth of the company's shareholders. NC Times reported "Investors sent Boeing's share price up $4.29, or 7 percent, to close at a four-year high of $65.96 Thursday on the New York Stock Exchange. " What he doesn't factor in is the level to which previous CEO's, perhaps also arriving to fanfare had driven the price. Off a low base...

See
Are CEOs overpaid? Walter E. Williams (archive) March 2, 2005
CEO Skill and Excessive Pay: A Breakdown in Corporate Governance? led by Stanford's Robert Daines February 2005.

In an interesting juxtposition, while Murray's second reason was the "inflation" CEO's doing their job may create, the corporate governance regulations caused by misdeeds of their CEO peers was playing out elsewhere in NYC. WSJ reported [Tyco Figures Will Be Jailed at Least 7 Years - Judge Orders Kozlowski, Swartz To Also Pay Back $240 Million; CEO's `Kleptocratic Management' By Mark Maremont 20 September 2005 The Wall Street Journal] in New York, inmates with > six years to serve until parole eligibility are sent to one of the state's maximum-security prisons, which house 22,000 mostly violent offenders, according to Linda Foglia, New York State Department of Correctional Services spokeswoman.

Prisoners in such facilities are housed in cells, and work six hours a day at tasks like sweeping, painting, or working in the library, she said, adding that inmates generally are paid $1.05 a day. I wonder how many decimal points my .xls will need to calculate that with his original salary as numerator?

Are CEOs paid too much? Write to Alan Murray soon at business@wsj.com.