The Free Press, Mankato, MN

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June 18, 2008

Our View: CEO pay unjustified

When the economy is good, it’s difficult to justify the kind of salaries and perks enjoyed by many of America’s highest paid CEOs.

When the economy is sluggish, it’s fair to suggest they’re making out like bandits.

The latest review of compensation for company leaders in the Standard & Poor’s 500 index reveals that salaries and benefits continue to grow out of line with performance. The median pay package, according to the Associated Press, for CEOs is about $8.4 million, which amounts to a 31⁄2 percent increase from last year. This, at a time when the U.S. economy struggled and at a time when many of the CEOs’ companies struggled along with it.

Not untypical is the case of General Motors head Rick Wagoner, whose pay rose 64 percent to $15.7 million as GM announced the closing of four plants. In many other cases, even when companies gave lip service to basing CEO compensation on “pay for performance” rules, the so-called rules were circumvented. The shareholders of many companies appear to be the victims of what one analyst called a “shell game” where policy is but a word and creative deception ensures the desired result.

Meanwhile, the rest of us have learned to expect smaller raises when the company struggles. Most of us have a hard time understanding why corporate big shots’ pay seems to have little to do with their performance. The Associated Press report makes it clear that shareholders continue to lack a comparative return, in good times or in bad, while CEOs bank on higher and higher packages.

The obvious answer to all this unseemliness is to give rank-and-file investors a greater say on CEO pay, handing them more power so that company directors might be held accountable. Some politicians, including presidential candidates Barack Obama and John McCain, have joined the discussion, with Obama supporting legislation and McCain preferring companies make their own decisions.

Legislating morality, even when it’s about embarrassingly high CEO pay, is always a questionable solution. But after this latest report, it’s becoming clear it might be the only way usher in some corporate fiscal responsibility.

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