Executive Compensation and the Highest Paid CEOs

Who are the top ten highest paid CEOs for 2007?  According to the Associated Press:

1. John Thain, Merrill Lynch, $83.1 million

2. Leslie Moonves, CBS Corp., $67.6 million

3. Richard Adkerson, Freeport-McMoran Copper & Gold Inc., $65.3 million

4. Bob Simpson, XTO Energy Inc., $56.6 million

5. Lloyd Blankfein, Goldman Sachs Group Inc., $53.9 million

6. Kenneth Chenault, American Express Co., $51.7 million

7. Eugene Isenberg, Nabors Industries Ltd., $44.6 million

8. John Mack, Morgan Stanley, $41.7 million

9. Glenn Murphy, Gap Inc., $39.1 million

10. Ray Irani, Occidental Petroleum Corp., $34.2 million

How are these companies doing?  For half of them, not well.  So in other words, compensation is high when the company is doing well and high when the company is not.  The pattern in the top 10 apparently holds true for the rest of the companies in the rest of the S&P 500 (at least those with available information).  As the study concluded:  "CEO pay rose and fell regardless of the direction of a company’s stock price or profits."

In fairness, the compensation paid to Thain was largely what he negotiated in agreeing to take over the reigns of the investment banking firm.  In those circumstances (joining the company), there is something of a market for CEO services, with the relationship often arms length and the compensation reflecting the amount needed to land the sought after candidate.  This is not true with respect to annual salary determinations where the CEO sits on the board and has the capacity to influence the process. 

As we have discussed time and time again, the core problem is the lack of meaningful standards for determining compensation under state law.  As long as the process is adequate (and the courts in Delaware are not very demanding on this score), almost any compensation amount is valid (there is a theoretical limit, waste, but it's never actually applied).  Because of this lack of standards, attention has shifted to the federal government to fill the void.  This is why you have the SEC trying to use disclosure to affect the way compensation decisions are made and why legislation like "say on pay" is kicking around Congress.  Gradual steps towards federal preemption and they will accelerate once the November 2008 elections have come and gone.