Centrarian.Com

When George Bush starts complaining about executive pay - Bush takes aim at executive pay - you know it’s got to be bad. How can we call this a merit system when executives can brazenly take advantage of their power to extract undeserved rewards?

I emphasize undeserved. Recently it was reported that Robert L. Nardelli - Nardelli article - is expected to exit from Home Depot with a package worth more than $210 million (added to his more than $10 million per year while he was there) even though the company’s stock has fallen by roughly 20% during his tenure.

A month before that it was reported that Hank McKinnell, previously head of Pfizer, recieved a $200 million exit package (see McKinnell article). This package included a pension of $6.65 million a year for as long as he lives (worth $82.3 million), $78 million in deferred compensation, and an estimated $18.3 million in “performance-based shares.” As Gretchen Morgenson, author of the article points out, “perhaps it would be more accurate if these were identified as failure-based shares”, given the fact that Pfizer shares dropped from $46 to $26 a share under his tenure.

Unfortunately, there are lots more examples. Mostly because “incentive” compensation plans pay off no matter what - even if stockholder value has been destroyed.

What to do about it? Will Congress fix it or make it worse? I will certainly come back to that.