An excerpt from a Jon Talton piece in the Seattle Times:

Even back in the 1980s, shareholder activists and academics urged companies to separate the jobs of chief executive and chairman, as well as to have more independent directors.

The CEO is the top manager. But the chairman of the board should represent the larger interests of shareholders. He or she ideally is an independent director and can act as a check on the chief executive.

An independent chairman, for example, might have stopped Thompson from risking Wachovia's (NYSE: WB) future by acquiring mortgage lender Golden West Financial in 2006, when the signs of a housing and credit bubble were already abundant.

Yet America spent the 1990s worshipping at the altar of the imperial CEO, who held the title chairman as well, as if by divine right. CEO pay began its rise to imperial levels, no matter the company's performance.

The model here was Jack Welch at General Electric (NYSE: GE). Rubber-stamp boards became the norm. These corporate celebrities wrote books that not only promised to unlock the secret of business success, but even personal enlightenment.

Of course, it's easy to be a genius in a bull market. When scandal and corporate missteps brought on the 2001 recession, the centralized corporate-leadership model showed its worst weaknesses.

Enron, WorldCom, HealthSouth, Tyco International and others lacked independent chairmen and boards.

Congress passed reforms focused on the bookkeeping, but few companies emerged into the 2000s with independent chairmen, or even independent judgment.

The problem is all-powerful CEOs don't always act in the best interests of shareholders. This is on display with the disconnect between CEO compensation and performance.

Nor do imperial CEOs always act for the long-term health of their companies. This was the point of last week's unsuccessful effort to split the chairman and CEO jobs at Exxon Mobil (NYSE: XOM).

Dissident shareholders, including the Rockefellers, argued that the current imperial CEO refused to invest enough in alternative energy.

Exxon, of course, is awash in profits.

Facing a shareholder revolt of no small power, [Wachovia has] the opportunity to break the imperial model, split the jobs and bring independent judgment to the toughest calls.

What a concept.

Thomas Noe, Ernest Butten professor of management studies at the University of Oxford, has an interesting and analytical look at the economics and arguments surrounding CEO pay, available in its entirety here:

The attack on CEO compensation comes from two directions. Some argue that CEO compensation is too high, exceeding the level CEOs would obtain in arm’s length transactions; others argue that CEO compensation is too low-powered, that is, too insensitive to firm performance.

The problem with the “too high” argument is that it is not easy to find an absolute threshold beyond which CEO compensation becomes unreasonable.
 
At a company such as Walt Disney Co. (NYSE: DIS), with around $3 billion in after-tax profits, a CEO capable of boosting profits by a modest 5% could—even if we capitalize earnings at a modest price-earnings multiple of 5—raise corporate value by $750 million. In this context, the “outrageous” salary earned by Disney’s ex-CEO, Michael Eisner, of around $100 million does not seem so outrageous.

• Because it is difficult for critics of CEO compensation to measure either the scope for CEO value creation or the diffusion of star talent across the population of CEOs, critics for the most part attack the level of CEO compensation through comparisons, either by comparing the CEO of today with the CEO of yesteryear or by making cross-country comparisons.

Lucian Bebchuk and Yaniv Grinstein (2005), for example, show that US CEOs’ compensation relative to corporate profits has grown substantially between 1993 and 2003. Martin J. Conyon and Kevin J. Murphy show that in 1997, CEO compensation in the US was more than double CEO compensation in the UK.

• At first glance, these observations seem to support the idea that, at least in the US, lowering CEO compensation would be in shareholders’ interest. However, upon further inspection, the case is less clear. Much depends on how compensation is measured. Carola Frydman and Raven Saks (2007) show that relative to assets, the increase in US CEOs’ compensation is very modest. Moreover, the increase over the 1990s compensated for a decrease in normalized compensation in the preceding 10 years.

• The indictment of CEO compensation that is based on “low performance sensitivity” is also less than air-tight. The argument is that “high-powered” CEO compensation, which deals out very high rewards on average but concentrates these rewards at the top end of firm performance, is the ideal way to incentivize managers. This rests on the assumption that a board’s problem of designing incentives for the CEO is qualitatively similar to the standard problem of inducing effort from an employee.
 
However, the CEO’s position relative to shareholders is fundamentally different from a worker’s position relative to his boss. The CEO has a huge information advantage over the board and enormous discretion. In this environment, CEOs need incentives to do the right thing, even when their firm is sailing through rough seas and very ambitious performance targets are out of sight.

• Moreover, a weak relation between the CEO’s current performance and current compensation does not imply a weak relation between long-run performance and the CEO’s long-run compensation.

In a dynamic world, rewards for performance need not be meted out at the same time as performance. My research with Rebello shows that optimal CEO compensation can lead to a very weak relation of current CEO pay and current firm performance and yet produce a very strong link between the long-term value of the CEO’s position and firm performance. The empirical research of John F. Boschen and Kimberly Smith (1994) shows that a weak current but strong long-term link is typical of US firms.

CFO.com’s Stephen Taub examines new Chief Financial Officer pay data:

Median CFO pay increased by 5.2 percent in 2007, to $2,894,275 from the prior year's $2,752,027, according to a new Equilar study of Standard & Poor's 500 companies.

The executive compensation specialist noted that median total equity compensation actually jumped 8.2 percent, while median bonus payouts dropped 3.4 percent to bring down the total. The study covered 313 of the S&P 500 finance chiefs in place for at least two years.

The sharp median pay increase contrasts with a 1.3 percent increase in median CEO compensation in the same time frame, recorded in an Equilar study published in April. "The fact that median CFO compensation appears to be rising faster than median CEO compensation may indicate increased prominence for CFOs in the executive suite," Equilar theorized.

Breaking down the numbers from 2006 to 2007, the median base salary for S&P 500 CFOs increased by 9.1 percent, to $525,000 from $481,250.

In 2007, S&P 500 CFOs received a median aggregate bonus of $576,880, down 3.4 percent from the median of $597,263 reported in 2006. In addition, 93.6 percent of CFOs received any form of bonus compensation in 2007, down from 99 percent in 2006.

Meanwhile, from 2006 to 2007 the total value of equity awards for S&P 500 CFOs increased by 8.2 percent, rising to a median of $1,523,810 from a 2006 median of $1,408,804. The percentage of CFOs receiving equity grants was nearly flat, registering at 95.5 percent compared to the prior year's 95.8 percent.

A selection from Selena Maranjian's opinion on CEO pay written for The Motley Fool:

Wouldn't you agree that companies… must house scores, if not gobs, of talented executives? Now, wouldn't you think that many of these folks would love to run their company or a similar one? That they have the smarts and skills to do so? And wouldn't you think that if there were some CEO positions available at major corporations, these folks would gladly vie for the jobs -- and be willing to do them for a mere few million dollars, at most?

Given this supply of potential executives, why on earth do we have so many CEOs making tens, if not hundreds, of millions of dollars per year, even at poorly performing companies? Why are some CEOs collecting huge sums just upon landing their jobs, while others get enormous packages along with a pink slip?

A recent issue of Forbes tackled the topic, noting about Citigroup's (NYSE: C) new CEO, Vikram Pandit: "To recruit him the troubled bank paid him $241 million ... since his arrival, the stock has fallen a further 25%." I'm sorry, but it would be hard for me as an investor to have faith in a troubled company that thinks a new CEO is worth a quarter of a billion dollars.

The explanation for this ridiculous situation isn't a new one: Warren Buffett and his partner, Charlie Munger, have decried it for many years. CEO salaries have been spiraling out of control because boards of directors have been letting it happen. Because as soon as one CEO gets a hefty compensation package, others ask for -- and typically get -- similar ones. ("Everyone's doing it.") Because many directors on compensation committees either don't have the backbone to say no or are cronies of the CEO who selected them, or both. Many directors are former CEOs, as well.

If you add up all the overpayments to CEOs, you'll end up with billions of dollars that could have been deployed elsewhere, helping the companies grow, paying dividends to shareholders, or paying down debt. Lavish executive compensation is rarely the best use of a company's dollars.

It's hard to be optimistic about this situation, as those in charge seem to have little incentive to change anything, but there is some reason to hope. There have been incremental improvements to the status quo, with more possibly on the way. For example, many shareholders can now weigh in on CEO compensation, albeit via non-binding votes. Presidential hopefuls are also interested; Sen. Barack Obama, for example, supports requiring corporations to let shareholders have a "say-on-pay." Companies are now also required to disclose executive pay in detail, breaking out options and other compensation components, and valuing them.

With any luck, we'll see some win-win reforms enacted. For example, if CEOs are rewarded largely with company stock, they'll have some incentive to help the company perform better.

In the meantime, let's keep an eye on the situation and exercise our say-on-pay privileges when we can.

A look at the executive compensation atmosphere abroad by Sam Pizzigati and available in its entirety at http://www.alternet.org/workplace/86563/?page=entire:

The Dutch parliament, observers believe, will shortly enact into law legislation that will heavily tax American-style executive windfalls — and maybe set some global precedents.

Other European nations, news reports indicate, are already taking notice. Earlier this month, in Brussels, European Union finance ministers “applauded” Wouter Bos, the Dutch finance minister who’s leading his nation’s charge against executive excess. The chair of the Brussels session, Luxembourg prime minister Jean-Claude Juncker, called the “bloated payouts” going to corporate executives “a social scourge.”

The legislation that Bos is pushing in the Netherlands will impose a 30 percent tax on all executive severance packages that run over 500,000 euros, the equivalent of almost $800,000. Last year, the CEO of the top Dutch baby food maker exited his executive suite with $124 million, a windfall that outraged the Dutch public.

Before that landmark payout, executive pay reformers in the Netherlands had been content to press corporate boards to disclose more info on what they were paying their top execs. That disclosure, they figured, would help shareholders blow the whistle on extraordinary executive earnings.

But this sunshine strategy hasn’t worked, in the Netherlands and other European nations as well, and angry lawmakers are looking at legislation that specifically targets executive excess.

The Dutch are leading the way. The executive pay reforms now pending in the Netherlands include, beside the hefty new tax on severance windfalls, one proposal that would limit bonuses and stock options to 100 percent of an executive’s pay and another that would raise the required employer contribution to company pension funds by 15 percent wherever companies hand executives over $800,000 in annual pension benefits.

In Germany, the Social Democratic Party, a junior partner in the current government, is calling for a $1 million annual limit on how much companies can deduct off their corporate taxes for executive compensation.

“We must consider placing a larger share of the tax burden on the income that grows the most quickly – and often without a great deal of effort,” explains Karl Lauterbach, a leading Social Democratic Party lawmaker.

The European Union parliament, meanwhile, is reportedly “eyeing curbs on stock options, bonuses, and golden parachutes,” a “clear sign,” says one British daily, “that the EU noose is tightening” on bankers,  private equity  funds, and “corporate elites that have enjoyed light-touch regulation.”

The Dutch executive pay reform proposals have Europe’s “superclass” — and its business press apologists — absolutely aghast.

“We should not accept state interference when it comes to our pay,” UK economic columnist Damian Reece harrumphed earlier this month. “The precedent some in Europe, like the Dutch, want to set is intolerable. A minimum wage is one thing, a maximum wage is quite another.”

But don’t expect the pressure for “state interference” to ease anytime soon. Europeans have become too accustomed to living in relatively equal societies to tolerate American-style executive pay.

That became clear at last month’s annual shareholder meeting of the Royal Bank of Scotland. RBS last year bought out a Dutch bank and then handed that bank’s departing CEO almost $50 million in goodbye pay. One shareholder at last month's annual meeting demanded — to loud applause — that the executives on the RBS board “reconsider” the company’s “entire remuneration policy.”

“You are being paid as if you are superhuman,” the shareholder angrily noted, “but you are not.”

J. Edward Ketz is uniquely qualified to discuss the technical aspects of CEO pay judging by his resume - an accounting professor at The Pennsylvania State University focusing on financial accounting and accounting ethics, he also wrote Hidden Financial Risk, a book that explores the cause of recent accounting scandals. The following is an excerpt from the SmartPros.com opinion article “Politics of CEO Pay:”

The class division may not be as bad as slavery, but everyday Americans are unhappy with their lot. Who can blame them as the good jobs are outsourced to foreign lands and eliminated in corporate restructurings? Poorly paid service jobs have replaced the better paying jobs. Firms like Walmart do all they can to keep the low-paying jobs low. I have a nephew who was recently fired from Walmart after working there a number of years and receiving several raises. His boss told him that he could get his job back if he were willing to receive the minimum wage. Does that sound fair?

The disparity in pay might not be badly received if laborers felt that executives had so much greater skill and added a tremendous amount of value to the firm. Given what has happened in the credit markets, however, I believe that the average citizen is questioning the competence of corporate executives. If these privileged executives really knew what they were doing and really made incisive decisions, then how did the meltdown occur in the credit markets? And why should CEOs be spared their jobs when Americans, right and left, are losing their homes? When the average Joe or Jane makes mistakes, they lose their job. Why don't more CEOs get the axe because of their incompetence? And, when they are let go, why are they entitled to a severance pay that others can get only if they win the lottery?

Additionally, the disparity in pay might not be badly received if Americans thought that the executives were morally straight and honest and trustworthy. Given the thousands of accounting restatements over the years, that image has been shattered. Watching corporate officials pay huge fines and go to prison, one instead wonders how a person could become so greedy or how corporate big shots can envision corporate assets as their own. This point is driven home by jokes like child in a sandbox telling the other that his mom said it was ok to talk with strangers as long as they weren't CEOs…

At this point I do not think Americans are ready to rebel in any significant way. But, if CEOs continue to mold themselves into nobles like the French aristocrats of the 18th century while the wealth of average Americans continues to evaporate, don't be surprised if a decade or so from now the little guys storm an American Bastille, metaphorically or literally. Aggrieved peons and urban wage-earners can take only so much of this self-aggrandizement.

DolmatConnell & Partners, Inc., an independent executive compensation consulting firm, released today their 2008 Tech100 and LifeScience100 Studies. These studies, now in their fourth and second year respectively, provide insight into the evolving world of executive compensation in the 100 largest publicly traded High Technology and Life Science companies in the U.S.

Changes in CEO pay level varied significantly between the two studies and were linked to overall industry performance levels. In the Tech100, CEO base salaries increased 3.8% and actual total cash compensation increased 2.9%, while total direct compensation (base + actual bonus + annual long-term incentive grant values) fell 0.6%. This was in line with a median annual total shareholder return for the industry which was 1.6%. The picture in the LifeScience100 was vastly different, with a median total shareholder return of 14.4% last year. CEO base salaries increased 5.6%, actual total cash compensation increased 10.3%, and total direct compensation rose 11.8%.

Pay-for-performance is dramatically improving, as Boards and Compensation Committees are responding to shareholder concerns with respect to executive pay. DolmatConnell & Partners looked at the Top 20 and Bottom 20 performing companies in each industry and found several encouraging results.

In the Tech100, median target bonuses for the Top 20 performing companies were 120% of base salary and actual bonus payouts were 139% of target ($1.4M), whereas in the Bottom 20 companies, median target bonuses were 150% of base salary, and actual bonus payouts were only 19% of target ($225K). Bonus payouts in the LifeScience100 followed similar trends. Says Jack Dolmat- Connell, CEO of DolmatConnell & Partners, "It is great to see that Boards are finally getting tough relative to the pay of underperforming CEOs. This is what has infuriated investors for years -- high pay for mediocre or poor results."

Most studies of executive compensation look at the aggregate value of base salary, actual bonus and the annual long-term incentive grant values in a given year, also known as "pay opportunity" for a given year. In addition to this, the DolmatConnell & Partners' studies looked at the value of compensation "realized" in a given year -- what executives actually took home. The results of this new look are stunning -- CEOs at Top 20 companies in the Tech100 realized $9.0M in 2007, whereas CEOs at Bottom 20 companies realized only $3.4M, a very significant difference in compensation based on performance. Unrealized compensation (the value of equity still outstanding) differences were even more dramatic -- CEOs of Top 20 companies held equity worth $45.0M, while the equity outstanding of the CEOs of the Bottom 20 was worth only $8.1M. Says Dolmat-Connell, "This is incredibly positive news based on a completely new and better way of looking at executive pay. It is also fascinating to note that the vast majority of the value of the equity held by CEOs in the Top 20 was in the form of stock options, an investor- friendly long-term incentive vehicle, whereas the majority of the value of the equity held by the Bottom 20 CEOs was in the form of time-based restricted shares, a very investor-unfriendly vehicle."

Angelo Mozilo, chairman and chief executive officer of Countrywide Financial (NYSE: CFC), had compensation dropped 79% to $10.8 million last year - though more than $10 million isn't bad for an executive that drove his company to the brink of total disaster.

In an embarrassing incident for the company, it has recently come out that Mozilo also accidentally responded to an e-mail from a borrower. Here is the excerpted exchange:

“I am writing this letter to explain my unfortunate set of circumstances that have caused me to become delinquent on my mortgage. I have done everything in my power to make ends meet but unfortunately I have fallen short and would like you to consider working with me to modify my loan. My number one goal is to keep my home that I have lived in for sixteen years, remodeled with my own sweat equity…this home means the world to me…. it’s to the point where I cannot afford to pay what is owed to Countrywide. It is my full intention to pay what I owe. But at this time I have exhausted all of my income and resources so I am turning to you for help.”
–Countrywide borrower Dan Bailey

“This is unbelievable. Most of these letters now have the same wording. Obviously they are being counseled by some other person or by the internet. Disgusting.“
–Countrywide Financial founder, Mozilo

Mozilo was indeed correct, the e-mail was guided by a form letter available on an Internet forum, but the incident and wording are doing nothing to help his reputation.