From a Matthew Daneman piece in The Rochester Democrat and Chronicle:

Being the head of a major company often comes with rewards beyond a nice paycheck and oodles of stock.

As part of his 2007 compensation, Eastman Kodak (NYSE: EK) CEO Antonio Perez received $7,000 worth of financial counseling, $24,723 for a security system and personal use of Kodak aircraft valued at $340,007, according to the company's proxy statement.

Securities and Exchange Commission filings by other companies showed 2007 perks including:

• $135,725 moving expense reimbursement for Stephen S. Romaine, CEO of Ithaca-based Tompkins Financial Corp.
• $19,578 to cover taxes for Carl E. Sassano of Transcat Inc. in Ogden, a distributor of calibration equipment.
• $64,825 in perks, including club membership dues, meals and the cost of a Buffalo apartment for M&T Bank CEO Robert G. Wilmers.
• $1,250 clothing allowance for Homi B. Patel, CEO of Hickey Freeman's parent company, Hartmarx Corp.

Not surprisingly, in this selection from a Reuters piece on a new industry group fighting for CEO pay status quo, the group reveals its true colors: the average stockholder (meaning the average owner of the company) couldn't possibly understand the complicated reasons why a CEO needs to be paid an outrageous sum of money - hence say-on-pay is bad for business and bad for America:

With business leaders facing rising scrutiny from shareholders and lawmakers about their compensation, a new organization wants to tell corporate America's side of the executive pay story.

Leaders of the Center on Executive Compensation, an industry-backed group based in Washington, say they want to offer a reasoned view about how to create good pay practices.

The center says its mission is not to blindly defend CEO payouts that have angered investors, but to strengthen the links between pay and performance industrywide while ensuring companies remain competitive.

The media has "rightly" put the spotlight on instances of excessive CEO pay, "but our concern is that paints a picture of corporate America in total," said Richard Floersch, the center's chairman.

"For the vast majority of companies, they are dedicated to a very strong executive compensation program with very strong principles around pay for performance," he said. "Unfortunately, that story doesn't come out when you do have some of these outlier situations."

Activist investors have lashed out over executive payouts they consider too lavish, while members of Congress have publicly scolded some corporate chiefs for receiving outsized pay packages at a time when their companies have been hard hit by the U.S. mortgage crisis.

CEOs themselves play no direct role at the new center, an offshoot of the HR Policy Association, which represents human resources officers at big U.S. companies.

The center has a 16-member advisory board made up of chief HR officials at companies such as American Airlines (NYSE: AMR), International Business Machines (NYSE: IBM)) and Lockheed Martin Corp (NYSE: LMT).

Shareholder rights activists say they do not have high hopes that the executive compensation center will advocate for investors.

"This is part of the effort of the business community to protect the status quo from angry shareholders and a concerned Congress," said Richard Ferlauto, director of pension and benefit policy at the American Federation of State, County and Municipal Employees (AFSCME), a frequent critic of executive pay plans.

"It just shows that the business community is mobilizing, rather than reforming pay," he said.

The executive compensation center opposes the "say-on-pay" investor proposals and a bill pending in Congress calling for a mandatory shareholder vote on executive pay, saying they could end up forcing companies to adopt "cookie-cutter" pay plans aimed at winning shareholder support rather than be in the corporations' best strategic interests.

"There are a lot of unintended consequences and negative consequences from adopting a shareholder vote," said Charles Tharp, the center's executive vice president for policy.

From an Anne Moore Odell piece on SocialFunds.com:

This year over 90 companies have faced, or are going to face, shareholder resolutions on "say on pay." The resolutions were filed by a broad coalition of 75 plus investors managing over $1 trillion in assets. Walden Asset Management, one of the lead filers of these resolutions, reports that of the proposals that have faced voters this year, a majority have received at least 40% approval with six proposals reaching over 50%.

"The advisory vote on executive compensation would help insure that corporate boards, specifically the compensation committees, do a better job at explaining to shareholders how executive pay is linked to performance," said Brother Steven O'Neil, shareholder action coordinator for the Marianist Province of the United States.

"Even if the shareholder vote is advisory, the board would have a lot of explaining to do if they implemented a pay plan that the majority of shareholders were against," explained O'Neil. The Marianists were the primary filer on "say on pay" resolutions at Capital One and Oracle. They were co-filers at Exxon-Mobil.

The 2008 proxy season has seen a 50% increase in the number of "say on pay" resolutions from 2007, jumping from over 60 resolutions in 2007 to over 90 in 2008. The first "say on pay" resolution was filed by the AFSCME Employees Pension Plan in 2006.

RiskMetrics Group reports in it Midseason Review of the proxy season that executive pay vote proposals have averaged 43.1% support over 35 meetings where preliminary or final results are known. This compares to 42.5% support of these proposals in 2007.

"Under new SEC rules, companies have to disclose the total compensation of their top officers," explained Tim Brennan, treasurer and vice president of finance for the Unitarian Universalist Association. "In the past, much of this information had been buried in the annual filings."

"Now, what can investors do with this information? The most effective and efficient way for shareholders to communicate whether company management, their agents, are being fairly compensated is to have a vote at the annual meeting. This is also a great way for boards to get a reading on the judgment of the shareholders, whom they represent," Brennan continued.

Aflac became this first company to support an advisory vote on executive pay. Shareholders overwhelming supported the issue, voting 93% for the measure.

"I think that the fear of the proposals on the part of the companies is largely unfounded, at least for those with rigorous and fair compensation systems," said Brennan. "Witness the vote at Aflac, the first company to conduct such a vote. Management compensation received approval from over 90% of the shareholders. That's a great vote of confidence for the company and the board."

Other companies that have adopted policies regarding advisory votes on compensation include Blockbuster, Verizon, RiskMetrics, and Par Pharmaceuticals.

As of the end of May, the 2008 "say on pay" resolutions votes that received a majority, some of which are preliminary, include Apple Computer (51%), Alaska Air (53%), Lexmark (60%), PG&E (52%), Motorola (54%), and South Financial Group (52%).

Other results on "say on pay" include Bank of New York Mellon, (46%), Bank of America (45%), Citigroup (42%), Dresser Rand (46%), Dupont (45%), Edison International (47%), Boeing (46%), Goldman Sachs (46%), IBM (43%), Johnson & Johnson (45%), Lockheed Martin (46%), Occidental Petroleum (45%), Merck (48%), PepsiCo (44%), and Waddell & Reed Financial (49.5%).

RiskMetrics notes that as of May 23, no "say on pay" proposal has received less than 30% support.

From The Motley Fool's Alyce Lomax piece "Bad News in CEO Pay":

Many newspaper companies' CEOs actually got raises in 2007, even though a dozen newspaper companies he surveyed saw their share prices decrease by an average of 35.7%. (Granted, CEO pay in the group did decrease by 11.7% on average, but you wouldn't know it from some of the figures.) Check out some examples:

    * News Corp.'s (NYSE: NWS) Rupert Murdoch got a whopping total payout of $32.1 million in 2007. That was a 24% increase over the prior year, even though News Corp.'s shares lost about 8%.
    * Here's a piece of news that might be more at home in a scandal sheet: Journal Register's former CEO Robert Jelenic enjoyed a 333.2% pay increase to $6.3 million, even though the company's shares shed three-fourths of their value. (He's gone now, so his pay included severance; Journal Register now trades on the Pink Sheets. Ouch.)

Situations like these tend to deflate the customary arguments that CEOs should make mad money. Some people argue that exorbitant pay for CEOs reflects the high degree of risk these individuals assume. I'm sorry -- risk?

We've all seen CEOs do an indisputably lousy job, then walk away filthy rich. They often get high-profile gigs elsewhere, too -- look at Home Depot's (NYSE: HD) former CEO, Bob Nardelli, who went on to Chrysler. And what about Merrill Lynch's (NYSE: MER) former CEO, Stan O'Neal? He almost immediately joined Alcoa's (NYSE: AA) board of directors after leaving Merrill. Sure, everybody makes mistakes, but given their rich rewards for underperformance, we can't exactly call these folks' positions "risky." And there seems to be little (if any) shame in accepting tons of money for public failure.

On the bright side, Mutter pointed out a couple of newspaper companies on the other side of the spectrum, where stock performance and CEO pay more closely matched reality last year:

    * Washington Post's (NYSE: WPO) Donald Graham's compensation fell 52.4% to just $411,700; the company's shares fell 17.9%.
    * Scripps' (NYSE: SSP) CEO Kenneth Lowe's pay also dropped even more precipitously than his company's stock price. He took a 20.3% pay cut to $7.9 million, while Scripps shares fell 9.9%.

Mutter called Washington Post and Scripps "two of the most diversified and progressive companies in the publishing industry," and pointed out that their compensation policies are obviously set up to penalize the company leaders for not attaining tough goals. These CEOs took a hit to their wallets even though their companies' shares actually did better than many others in the industry.

Call me crazy, but that sounds like a common-sense policy for all corporations to me. "Our company's not as much of a loser as our peers, and that makes us a winner -- so pay up!" doesn't strike me as a path to greatness.

General Motors (NYSE: GM) executives took some heat during their latest annual shareholders meeting. Investors blasted executives for raking in huge salaries and bonuses while the automaker has continued to struggle financially. However, yet another say on pay proposal was defeated by apathetic institutional investors. The fear on their end is that shareholders may be too harsh and the measure would result in an exodus of executives.

Many shareholders believe that GM's market share, stock price and credit rating have all decreased in recent years, but the management and directors have not been held accountable. Employees have also felt the pressure with more than 10,000 jobs set to be cut in Canada, the United States and Mexico. According to one investor, "We either need to change this company or have the Japanese come in and run the whole place."

GM suffered a $38 billion loss in 2007 and the auto market continues to struggle in 2008. While many of the circumstances surrounding this decline is market and not company related, many investors still believe that executives should share in the pain. However, those supporting executive maintain that many own a substantial amount of stock and therefore are already sharing in the pain.

In the end, this is another example of shareholders disagreeing with management and the board. Executive compensation may remain a hot-button issue, but it clearly still isn't being resolved as long as public fights like these occur.

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.