BUSINESS

Shining a light on CEO greed won’t solve it

JASON KIRBY June 25 2007
BUSINESS

Shining a light on CEO greed won’t solve it

JASON KIRBY June 25 2007

Shining a light on CEO greed won’t solve it

JASON KIRBY

As corporate bugaboos go, executive compensation truly stands out. No other governance issue has attracted more ink and ire, yet has been so thoroughly ignored by those massively enriched CEOs critics have aimed to rein in. Now some in Canada have called for even stiffer rules and guidelines as the answer. But if history is any indication, the solutions they’ve proposed may drive up CEO pay even further.

This week Courtney Pratt, the former CEO and now chairman of Stelco, blasted excessive emolument in a newspaper essay. He highlighted new proposed rules from the Canadian Securities Administrators that would tighten disclosure loopholes. Meanwhile, a panel from the Institute of Corporate Directors has issued a report calling on companies to adopt a more rigorous process for determining and disclosing CEO pay. Purdy Crawford, a corporate director and lawyer, said the report would provide “much needed guidance” for boards.

Since the collapse of Enron and WorldCom, compensation consultants have done brisk business, advising on executive pay. This latest push will create even more work for the governance industry.

But is greater transparency really the answer? Since U.S. regulators tightened the rules on executive pay disclosure in 1992, the amount of information about what each one earns has exploded. Rather than suppress stratospheric pay, numerous studies have found enhanced disclosure has tempted CEOs to jump ship when they see what their peers are earning across the street. According to a paper last year by Paolo Cioppa at the University of California at Berkeley about executive compensation, entitled the Fallacy of Disclosure, “This problem makes retention a crucial issue in all public corporations and contributes to further driving executive pay to excessive levels.” From 1993 to 2003, the median annual pay for S&P 500 CEOs actually rose 230 per cent to US$6.58 million.

As regulators seek to shine a light on the deep recesses of executive pay, there’s every reason to expect more of the same. M