Is The Top Brass Overpaid? Six Big Guns Sound Off

PAY CRITIC GRAEF S. CRYSTAL

His detractors dub him the darling of the corporation-bashers. The former pay consultant and business-school professor has done more than anyone else to heighten sensitivity over executive pay in the boardrooms of Corporate America. Even so, he's skeptical about recent disclosures by several companies, including Westinghouse Electric Corp., that they've cut CEOs' pay. "To appease the public," he says, "they're cutting the cash and then coming through the back door with a big option package. It's not a cut. It's a huge increase, in drag."

To increase accountability, Crystal believes no chief executives should sit on compensation committees of other companies' boards. "One way for a CEO to assure he's paid at the maximum is to pack his compensation committee with other CEOs."

What those committees might explore are two approaches to pay: One alternative, says Crystal, is to pay plenty, but only when the chief executive delivers big rewards to his shareholders. The other is to adopt the Japanese model. "They don't even try to pay for performance," he says. "They don't have any long-term incentives. At the end of the year, the CEO gets about $500,000 in Japan . . . and that's it."

KPMG PEAT MARWICK'S PETER T. CHINGOS For two decades, he has been a top pay consultant working with major corporations on the design of packages for chief executives. As the partner who heads the big accounting firm's compensation practice, he can't recall a time of greater furor over the issue. "We're reaching hysterical levels of concern," he says. "It's more of a knee-jerk reaction and a paranoia. There are clear examples of abuses out there, and we need to contain those, but they make up only a small minority."

For the first time in his career, Chingos says some compensation committees are asking the CEO to leave the room so that directors can speak with the consultant privately about the boss's pay package. "Even companies that pay their executives conservatively now want validations, second opinions, and more data."

Chingos believes that high pay reflects the limited number of executives who are able to run large organizations successfully. "How many Michael Eisners are there in the world?" he asks. "Companies have to pay a premium for business luminaries. If a CEO can create the kinds of shareholder gains created by an Eisner or [H.J. Heinz's Anthony] O'Reilly, boards are happy to give him what he deserves."

SENATOR CARL LEVIN (D-MICH.) When he held his first hearing last May on what he termed "runaway" executive pay, the chairman of a governmental affairs subcommittee could persuade only one other senator to attend the session. A third stopped by long enough to read a statement and leave. Undaunted, Levin became a key player in the pay debate, introducing a bill to require better disclosure of compensation practices. So the liberal Democrat must have taken some personal pleasure when the issue made headlines during President Bush's trade mission to Japan and when the Securities & Exchange Commission subsequently proposed new disclosure rules on pay.

Levin, who earns roughly $125,000 a year, says he found it appalling that "companies were laying off workers, asking workers for sacrifices, while at the same time their CEOs were significantly increasing their own salaries. When there is no relationship between pay and profitability of the company, you are in an anticompetitive position."

Intrigued by studies that show executive ownership of stock falling in recent years, he wants the government to require executives to hold exercised stock options for a minimum period to "maintain a link between performance and an executive's own financial situation."

RALSTON PURINA CEO WILLIAM P. STIRITZ

Like many top executives, the chieftain of one of the world's leading food companies blames the current brouhaha over executive pay largely on media hype. "It's the lowest form of yellow journalism," he told reporters, after a shareholder asked a question about his pay--$13.8 million last year in salary, bonus, and stock awards--at the company's annual meeting in January. "It's an easy hit . . . a red herring. It raises highly divisive issues among employees, shareholders, and management."

To Stiritz' way of thinking, critics often overlook what he considers the "most critical factors" in setting pay: the size of the company and its competitive position in an industry. "The popular press and executive-pay pundits often mislead and oversimplify," Stiritz says in a written response to BUSINESS WEEK. "They ignore that to be assessed fairly, executive compensation needs to be viewed in relation to assets under management . . . . Incentive compensation needs to be aligned with the unique challenges and degree of difficulty of the tasks at hand. No generalized industry-pay ratios, ranges, or caps can effectively be applied as mechanisms to control management compensation while still expecting high risk-reward performance."

UNITED SHAREHOLDERS ASSN. PRESIDENT RALPH V. WHITWORTH

As the head of this shareholder-advocacy group based in Washington, Whitworth believes executive pay is a symptom of what he considers the larger problem of lack of accountability in Corporate America. Founded in 1986, the association boasts 65,000 members, mostly small investors who often feel they constitute the silent majority of shareholders. "The CEOs are, by and large, setting their own pay," Whitworth says. "They pick the board of directors, and they pick the compensation consultant. The ultimate solution is to have a truly independent board. Today, you can't find a board member in America who was nominated and elected by the shareholders.

"Executive pay is irrational. There's no connection between pay and performance. Instead, compensation is based more on the size of a company, and that only encourages empire-building. Companies would like you to believe that high salaries must be paid to attract and retain these chief executives. It's not true. About 80% of all CEOs come from within their own companies, and they have been salivating for the job for years. In a free market, they would probably take the job for a pay cut, because of the perks, power, and prestige."

SANYO ELECTRIC PRESIDENT SATOSHI IUE

As a leader of one of Japan's first-rank consumer-electronics giants, Iue doesn't earn nearly as much as the typical American corporate chieftain. Average pay for the CEO of a big company in Japan is roughly one-fourth as much as his American counterpart's--a fact that often surfaces in the debate over executive pay. But Iue cautions against making such simplistic comparisons.

"It's very hard to compare America and Japan, first because we don't have enough information, and second because the job is so different in the two countries," he says. "In many cases, the president of an American company is carrying 90% of the responsibility for making decisions attached to that office. That's rarely the case in Japan, where so much of the burden of decision-making is distributed among subordinates and where so much is ultimately decided by group."

Iue says his frequent travels to the U.S. have led him to the conclusion that American chief executives put in more hours on the job than many top executives of Japanese concerns. "My feeling is that American company presidents work extremely hard and are under a lot of stress. If I had to work in America, it's quite possible I'd want to be compensated like an American."