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March 5th, 2009
10:28 AM ET

The right way to determine executive pay

[cnn-photo-caption image=http://i.l.cnn.net/cnn/2008/LIVING/worklife/01/30/best.hr.jobs/art.paycheck.jpg]

Richard R. Floersch
Wall Street Journal

It's that time again - proxy season - when compensation committees, independent advisers and HR executives are making final decisions about executive compensation in public companies for 2009 and beyond. Meanwhile, public anger about big paychecks is at a fever pitch.

In this climate, those responsible for setting the parameters in the private sector need to start asking the right questions and taking actions, even if the results aren't popular among executives. If they don't, Congress will likely seek to change the way compensation is provided.

This would be unfortunate, because aside from disclosure, past attempts to regulate the amount and form of executive compensation have backfired. The $1 million limitation on deductibility of senior executive compensation, which became law in 1993, resulted in many companies increasing CEO salaries to $1 million. Earlier limitations on exit packages had the same effect - the ceiling became a floor.

Often lost in public debate is a critical point: Compensation is, or should be, an integral part of a business strategy, devised to incentivize executives to accomplish that strategy.

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Filed under: 360° Radar • Economy • Raw Politics
soundoff (One Response)
  1. Michael "C" Lorton, Virginia

    Executives are all overpaid anyway--they get all the credit and do none of the work.....

    March 5, 2009 at 11:43 am |