New Yorker on Executive Compensation

BrooklynDodger(s) has questioned whether Surowiecki is really qualified to opine on the matters he opines about. But this article, available in full text, really states the case about corporate management looting corporations like Delphi and UAL.

In deference to excessively quoting this column, the Dodger(s) respectfully request that the reader [are hopefully reader(s)] click through the link. The New Yorker actually puts a lot of content on their website. The Dodger(s) aren't sure how that makes money, but it's certainly a pleasant service.

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THE FINANCIAL PAGE

OVERCOMPENSATING

Issue of 2006-02-13
Posted 2006-02-06

... the Securities and Exchange Commission recently proposed a new set of rules requiring companies to disclose more information about exactly how much (and in exactly what ways) they pay their top executives, i... The S.E.C.’s proposed rules will require companies to disclose more about executives’ perks and stock-option grants and about their future pension benefits. ... they’ve already come under fire. ... As Fred Smith, Jr., the head of the Competitive Enterprise Institute, put it, “This is playing to the simple egalitarian concern that a world where everybody gets paid the same amount would be a better world.” Only crypto-Marxists and softhearted liberals, in other words, worry about how much C.E.O.s make. In part, executive compensation matters to investors because executives now take so much money out of corporations every year. According to the economists Lucian Bebchuk and Yaniv Grinstein, between 1993 and 2003 the top five executives at fifteen hundred companies in the U.S. were paid three hundred and fifty billion dollars. from a shareholder’s perspective, overpaid C.E.O.s aren’t just expensive; they’re downright destructive. One recent study of the market between 1992 and 2001 by economists at Rutgers and Penn State found that the more a C.E.O. was paid, relative to his peers, the more likely his company was to underperform in the stock market. more and more, big investors are treating excess compensation as a reliable index that something serious may be wrong. In particular, it’s often a sign that a company’s board of directors is catering to the C.E.O.’s whims rather than supervising him.

— James