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Saturday, February 14, 2009

Executive Pay

As President Obama has already discovered, it is hard to change a culture; yet this is what he proposes with regard to executive compensation (Executive Pay Limits Seek To Alter Corporate Culture, New York Times, February 5, 2009: A1, B4). It is much easier to bring about change by issuing rules that firms must obey.

I would suggest a rule that if a company decides to provide any fringe benefit (with the exception of basic health care) then that benefit (bonus, stock option, restricted stock, automobile, country club fee, etc.) must be provided to each member of the company from the CEO to the research scientist, to the janitor. The amount each person gets should be the same percentage of base salary rather than the disproportionate percentage given to the CEO compared to the janitor: CEO's seem to get multiples of their salary in fringe benefits while ordinary people might get a bonus of 10% in a good year.

Such a rule would soon curb the excesses of Executive compensation.

Sent to New York Times

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