Public ire demands account for excessive CEO payments

When CNBC unveiled its 2010 list of America's 10 Most Stressful Jobs on April 22, it was little surprise that "corporate executive" placed second only to firefighter.

When CNBC unveiled its 2010 list of America's 10 Most Stressful Jobs on April 22, it was little surprise that "corporate executive" placed second only to firefighter. While America's CEOs may not be pulling people out of burning buildings, lately they have faced some pretty serious heat.

Thanks to CEOs who took bonuses on the heels of taking bailouts, public anger toward America's chief executives is at an all-time high - and that anger is reflected in the media. Still, executives must be paid, and if they work at public companies, their compensation packages must be disclosed.

In other years, such disclosures drew little notice outside Wall Street. But they were big news during 2010's proxy-filing season, garnering in-depth coverage from The Wall Street Journal, The New York Times, Fortune, and Bloomberg, among others.

In an era of populist outrage it seems almost impossible to admit the CEO of a large company got paid in 2009 without risking media-wide damnation.

Worth the money?
However, there are exceptions. Ray Irani, CEO of Occidental Petroleum, ranked number one among The Wall Street Journal's top-paid CEOs of 2009. On the day the Journal published its story, far from being beset by pitchfork-wielding protestors, Occidental's stock price hit a 52-week high.

One reason, at least according to Richard Kline, Occidental's VP of communications and public affairs, is that the focus on excessive payment to undeserving CEOs has fostered appreciation for the ones who merit it.

"There's a great deal more understanding of the concept of performing companies versus underperforming ones," he says. "In our case, the company has performed excellently and our chairman's compensation was clearly based on performance metrics. That at-risk approach is completely aligned with shareholder interest."

Not that Irani was completely spared the pitchforks. Fortune called him "an excessive pay hall-of-famer." Bloomberg's Peter Waldman wrote a critical 1,500-word article that skepti- cally examined every facet of his pay package. And several outlets cited an assertion by Corporate Library, a governance watchdog group, that Occidental systematically low-balled its performance goals to justify large pay packages.

But Kline is not alone in identifying an upside to the outrage. Paul Jensen, GM and head of the corporate practice at Weber Shandwick, New York, believes smart executives can use it to demonstrate their commitment to stakeholder interest.

"There are companies that have taken shareholder interest to heart and created compensation structures where the CEOs become examples of aligning shareholder and management interest," he adds. "Make a real commitment to bring compensation in line with performance and shareholders will respond."

Realistic compensation
Companies following such ad- vice include no less than General Electric, where CEO Jeffrey Immelt refused a bonus for the second straight year in 2009 as the firm's stock price fell nearly 7%. Starbucks CEO Howard Schultz took a massive pay cut - from $1.19 million to $6,900 annually - and declined a bonus in 2009 as his company cut thousands of jobs and closed 600 of its stores.

Despite these sacrifices, it is a sign of how toxic the subject of executive compensation has become, even for companies aggressively addressing it, that both GE and Starbucks declined to comment.

One way not to address the issue is to wait for it to blow over. Yes, public interest outrage regarding executive compensation tends to come and go, peaking at times of corporate malfeasance and receding when large companies are again seen as driving a thriving economy. Some lessons, however, are never forgotten, and Jensen believes what we've learned about executive pay in the past 12 months is among those.

"We're not in an era that is fundamentally different to the past," he says. "But the era of close scrutiny of executive compensation by the media and public is here to stay."

Top-Paid Executives in 2009:

1. Ray Irani
Company:
Occidental Petroleum
Salary: $1.2 million
Total comp: $52.2 million

2. Robert Iger
Company:
Walt Disney Company
Salary: $2 million
Total comp: $20.8 million

3. Samuel Palmisano
Company:
IBM
Salary: $1.8 million
Total comp: $20.1 million Source: The Wall Street Journal

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