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Bank bailout also curbs CEO pay

Rachel Dornhelm Oct 20, 2008
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TEXT OF STORY

Bill Radke: When Congress passed its bailout package,
it also limited the pay for CEOs of these rescued financial firms. Well reporter Rachel Dornhelm wanted to know how this might affect all executive compensation.


Rachel Dornhelm: Right after crafting the historic bailout package, House speaker Nancy Pelosi faced the press:

Nancy Pelosi: We sent a message to Wall Street: the party is over. The era of golden parachutes for high-flying Wall Street operators is over.

Wall Street salaries really took off in the early 80’s, says Charles Elson. He’s the director of the corporate governance program at the University of Delaware. He says where the banks led, the bread-and-butter industries followed.

Charles Elson: Investment bankers were drawing tremendous amounts of money. The CEOs of companies who these bankers were servicing said well, if I’m producing the goods, why should I not receive at least as much as those who are simply raising capital?

Back then, CEOs salaries were 40 times larger than the average worker’s. Today, they are 600 times the size.

Mark Borges is a compensation consultant. With numbers like that, he says there’s little wonder CEO pay has become so hotly debated.

Mark Borges: Cause it’s the one thing that I think we’re all imminently qualified to understand and analyze. It’s a real meat-and-potatoes issue.

Borges says it’s still very early in the game, but the guidelines could affect CEO pay in all industries.

Corporate governance professor Charles Elson says think of these rules like a pebble tossed into water:

Elson: Drop this stone in and reverberations of these kinds of limits go way beyond the institutions that are being regulated.

Defenders of high executive pay say companies have to offer large packages to attract great talent. But Elson says he expects company boards, which negotiate executive pay, will be forced to re-examine their hiring practices.

Elson: Boards fearful of governmental intervention, regulation, fearful of litigation, will begin to incorporate those kinds of limits — or at least some restraints — into the pay packages that they’re negotiating.

Elson says Congress could take up the issue of broader CEO compensation regulation early next year.

I’m Rachel Dornhelm for Marketplace.

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