INTERNATIONAL: Letter From America - CEOs must explain the size of their salaries to staff

Corporate CEOs need to justify their increasingly large pay packets to shareholders and employees if they want respect, writes US commentator Paul Holmes

Most of the proposals in President Bush's recent speech on corporate governance - the one that sent the stock market tumbling an impressive 500 points during the subsequent week - seemed designed to protect the status quo rather than to set higher ethical standards, encourage greater accountability, or expand current levels of transparency.

In one example, the President called for more candour on the subject of executive compensation. 'I challenge every CEO in America to describe in the company's annual report - prominently, and in plain English - details of his or her compensation package, including salary and bonus and benefits,' said Bush.

'And the CEO, in that report, should also explain why his or her compensation package is in the best interest of the company,' he added.

Like most of the President's proposals, this one did not go far enough.

Yes, the CEO should be expected to explain his or her compensation package to shareholders, but what about other constituencies, such as employees?

There's a pretty strong case to be made that running corporations exclusively for the benefit of their shareholders - rather than for the benefit of all their stakeholders - is at the root of our current crisis.

But let's focus on the issue of CEO pay and its impact on employee loyalty, and a shared sense of mission.

By now, everyone is familiar with the numbers. Two decades ago, the average CEO made 50 times as much as the average worker. Today, he or she makes 500 times more. Until recently, this was defended on the grounds that pay was tied to performance - a myth that was exploded when compensation continued to rise last year, even as profits plummeted.

Ah, but we need to pay CEOs handsomely if we want to attract the best candidates, don't we? Actually, it's far from clear where else CEOs would earn that kind of money.

If a good CEO is worth millions, isn't that at least partially offset by the value of esprit de corps? After all, there's a reason why the commandant of the Marine Corps earns just 13 times more than the lowest -level private.

The CEO should be forced to explain his compensation package to shareholders, via the annual report, but he or she should also be forced to do so in the employee newsletter - or preferably, in face-to-face Q&A meetings with staff.

If he or she can't handle those questions, or answer them with a straight face, chances are they are not worth all those millions.

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