Posted by: Jena McGregor on September 30, 2009
File this one under “ironic research studies” of the recession.
A majority of directors—the people who actually make decisions about CEO pay packages—believe CEO pay packages need trimming. In a significant shift from its 2006 survey, fifty-nine percent of respondents to a University of Southern California Marshall School of Business survey released earlier this month said there should be decreases in executive benefits and perquisites. Another 52% said retirement packages were too high, while a full 73% felt severance pay should be reduced. In 2006, just a minority of directors agreed with these statements (23%, 25% and 32%, respectively).
At the same time, the directors don’t want government to do much about it. Nearly half (49%) said President Obama’s initiative to impose advisory shareholder votes on executive compensation would hurt the effectiveness of pay plans, while 71% said government-imposed limits on executive pay would “greatly decrease” the effectiveness of pay plans.
But if that’s what they believe, what do they plan to do about it? When the people in charge of setting executive pay don’t want the government to step in, but aren’t making the changes themselves needed to reduce outrageous pay packages, what exactly are they proposing? The survey, which queried 140 directors in August at U.S. corporations, shows an extraordinary lack of accountability. If shareholders can’t count on the people in charge to make the changes, where should they turn instead?
What’s lost in the directors’ answers, too, is whether such high packages are needed to be “effective.” Executives are leaders, they are managers, and they hold significant responsibility. But despite what their compensation might indicate, they do not single-handedly determine the fates of their companies’ progress.
Of course, while many directors think executive pay is a problem elsewhere, an overwhelming majority say it’s not at their own firms. Eighty-six percent said their own CEO’s compensation plan was “effective” or “very effective.” It’s someone else’s problem, then. But whose?
How can you manage smarter? BusinessWeek writers Nanette Byrnes, Patricia O’Connell, Emily Thornton, Matthew Boyle, Michelle Conlin and Diane Brady synthesize insights from the brightest business thinkers, critique the latest management trends, and comment on leaders in the news.