A recent survey conducted by executive compensation consultants Steven Hall & Partners reveals that stock options are underwater at more than a third of the largest 500 U.S. corporations. The problem is that the market experienced a sudden downturn and left executives unable to reprice their options without shareholder approval. Since that is hard to get, there has been a growing number of executives leaving their companies to seek employment at other company's offering options at today's bargain-basement prices.

The situation leaves many boards in a difficult position since they have to take action to retain executives but do not want to upset shareholders. Executives require more shares in order to stay on board while additional shares being issued dilutes shareholders and carries a costly charge to earnings. The industries most affected are airlines, automotives, financials, builders, pharmaceuticals, telecoms and retailers. It is up to boards now to evaluate the best options and mediate between shareholders and management.

Toll Brothers Inc. (NYSE: TOL) is quickly becoming a model of how not to do executive compensation. The company's chief executive Robert Toll, who ranks among the highest paid CEOs in the nation, may have taken a cut in total compensation for 2007, but his bonus plan is being changed to allow him to gain regardless of his performance. Mr. Toll took home $7.1 million in total compensation for 2007, according to an 8-K filing with the SEC, which has many fuming as the company's shares fell from its highs of $33.80 to $15.49 before rebouding now to around $22 amid continuing gloom in the housing market.

Mr. Toll's current bonus plan is strictly dependent on financial performance and is linked, albeit complicatedly, to a rise in the company's stock price. The new plan will give Toll 2% of the company's pretax income before his bonus in order to "compensate the CEO fairly ... mindful of the current severe downturn in the homebuilding industry". His bonus will then depend on a host of other factors, including gross revenue and cash flow to the issuance of new debt, acquisitions, cost cutting, and even vague factors like worker morale.

The CEO didn't get a bonus in 2007 on top of his $1.3 million salary, but did get nearly $95,000 in other compensation, including $26,000 in auto and gas expenses, $35,000 in tax and financial statement prep, $2,200 in telecom and Internet payment, and $1,500 in club dues. He was also awarded $5.67 million in stock options and booked $339,500 worth of a personal jet using company funds. Meanwhile, the company's director compensation was also shown to be $5,000 for each full day board meeting, $2,500 for a half day, and $1,750 for a meeting by phone or committee meeting.

How's that for a day's work?

WM Wrigley Jr. Co. (NYSE: WWY) president and chief executive William Perez was awarded a 20 percent increase in compensation compared to last year, according to an 8-K filing with the SEC.

The executive earned about $1.4 million in base salary during his first full year as head of the candy-maker along with a non-equity incentive plan of nearly $2 million (although he will defer the receipt of this award), stock and option awards valued at $4.4 million, and $230,522 in other compensation. The company ended up covering a relocation allowance, financial planning services, administrative assistant services, personal use of company aircraft and savings plan matching contributions.

Meanwhile, Wrigley shares have fallen 20 percent from a 52-week high of $69.12 in October while net income rose 19 percent to $2.28 per share on revenues of $5.39 billion.

Eaton Corporation (ETN) chief executive Alexander Cutler received compensation of around $14.7 million in 2007 - a 21% increase year-over-year. The executive's base salary rose $45,000 to just under $1.1 million last year, but he also added $9.5 million in performance-based cash bonuses plus stock awards and options valued at $3.9 million when they were granted in February of last year. He also received perks totalling $224,778, including $18,000 in car allowance; estate planning, financial counseling and tax preparation worth $18,900; $76,778 worth of personal use of company aircraft (with an associated tax grossup worth $10,332; and company purchased life insurance worth $12,003. And finally he also made $3,238 in above-market rturns on his non-qualified deferred compensation. Not a bad package for a company whose stock has fallen from $100 a share in October to just $80 these days...

A rising number of corporate diretors are expressing their concerns about skyrocketing CEO compensation, but they are washing their hands of any responsibility. Many are beginning to blame compensation consultants for the high pay, saying that they are assigning estimates that are simply too high to justify. However, it is the directors who sign off on the high compensation and grant it to sometimes-undeserving CEOs.

The blame-game has pushed lawmakers to open an even broader investigation into compensation practices. They had interviewed board members in the past and are now seeking insight from compensation consultants to determine the factors at play. Often times, these consultants base their recommendations on peer compensation and adjust it higher with performance goals as they are met. Unfortunately, these performance goals are often set too low and for inappropriate measures. The result is spiraling peer compensation numbers and even higher bonuses.

The SEC has also done what it can to make executive compensation more public in hopes that shareholders will begin to take the issue into their own hands by pressuring the board and management. This has seen some success, but they complain that many companies are simply ignoring the new rules because a lack of enforcement ability. All they can do is investigate fraud at this point- compliance is of little concern.

Instead of playing the blame-game, perhaps everyone should work together to curb the problem before it gets even more out of control...

A recent survey of U.S.-based directors of public companies found that CEO pay is too high in most cases. This should come at no surprise to Americans, but why don't directors act on the problems that they see? The study, released by Heidrick & Struggles International and the Center for Effective Organizations, also found widespread unhappiness among directors regarding disclosure rules about executive compensation imposed by the SEC.

The survey saw a rise in concern year-over-year about the level of CEO compensation; however, about half of them qualified their answers by saying that compensation is about right except for a few high profile cases. Indeed, only 11% of the respondents agreed that SEC-mandated executive compensation information was at a great level while fewer than 3 out of 10 agreed that proxy statements provide valuable information about the amount of executive compensation.

So, if the government isn't doing enough and board members aren't taking action - where does that leave investors?

Aflac Inc. decided to adopt a say-on-pay advisory vote in 2007 and chief execuive Daniel Amos was surprised by the reaction. The chief executive approved of it, however, because it fit with the model set throughout the company's history of being a transparent organization. Amos stopped short of saying that the government should require all companies to give shareholders a say-on-pay, however, saying instead that companies should listen to their shareholders because they own the company. It will be interesting to see how much response the vote generates in the 2008 proxy after all the press it has been receiving.

The House of Representatives Oversight and Government reform Committee announced that it requested more information about how executive compensation consultants are utilized in executive pay determinations. The letter reporedly asks a series of questions about the compensation consulting process - particularly, if the company has used a consultant and (if so) if they also perform other services. The House has been looking into executive compensation for some time now after Chairman Henry Waxman commented that CEOs earn over 600 times more than the average company employee while 10% of a company's profits go to pay their salaries - something needs to be changed! Meanwhile, the SEC remains unhappy with the results of its latest requirements as very few companies managed to pass muster. It will be interesting to see how these two governing bodies act to control the problem.

Disney's CEO Iger inked a new contract with the company that will extend his tenure until January 31, 2013. The contract guarantees a bonus of $10 million from $7.25 million and grants him an option on 3 million shares, according to a filing with the SEC. Meanwhile, the value of Iger's long-term incentive award target was raised to $9 million from $9 million. For 2007, the executive received $27.7 million, which included a $13.7 million bonus and a $2 million salary plus stock options.

The chief executive became CEO of Disney in September 2005, following the questionable tenure of longtime chief executive Michael Eisner. Under his direction, the company has improved up until this latest quarter where net income increased by 24%. "Bob is a talented and visionary leader, under whom Disney has posted increases in growth and profitability that have consistently exceeded expectations," said Chairman John E. Pepper Jr.