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Watchdog Challenges CEO Pay

The head of the nation's accounting oversight agency speaks out, again, against excessive executive salaries.

October 21, 2003|Kathy M. Kristof | Times Staff Writer

Angry shareholders want corporate directors to cut runaway executive pay -- and directors should listen, even if it means showing a chief executive the door, the head of the national accounting watchdog agency said Monday.

William McDonough, who was named chairman of the Public Company Accounting Oversight Board this year and has railed against excessive compensation before, launched a new broadside in a speech to the National Assn. of Corporate Directors.

"Americans are telling their elected representatives that they are angry, and the thing they are angriest about is executive compensation," he said. "If the pay should be rightfully reduced, what is the worst that can happen? An insulted CEO resigns or takes early retirement. He or she has the burden of finding new work.

"You, as directors and fiduciaries of your corporation, have the satisfaction of having said to investors, to the public, to the world, that this is what the job is worth."

McDonough, who said his remarks represented his personal views, not those of the accounting board or its staff, had been head of the Federal Reserve Bank of New York before taking the accounting post.

As one of the most powerful people on Wall Street in 2002, he stunned some colleagues when he used a Sept. 11 memorial service to attack excessive corporate pay as morally indefensible.

The accounting board was created by Congress last year in the wake of financial debacles at Enron Corp., Adelphia Communications Corp., WorldCom Inc. and other firms.

Insiders at those companies have been accused of reaping huge gains while shareholders lost everything as the stocks collapsed.

Executive pay has continued to be a hot topic this year, and the issue was stoked anew in September by revelations that the former chairman of the New York Stock Exchange, Richard Grasso, was granted a compensation package worth nearly $188 million. Grasso was forced to resign last month.

CEOs of large public companies earn an average of $1.8 million to $2 million annually, according to David Aboody, associate professor of accounting at UCLA. Some pull in considerably more when long-term incentives such as stock options and perks are added into the equation.

McDonough, who earns $556,000 a year at the accounting board, said that losing a CEO over a pay dispute may be unsettling, but "we have to start somewhere and we have to start soon."

The message was well received by some compensation experts and shareholders.

Frank Shoring, a Hartford, Conn., retiree, said he thought it was about time someone in power spoke out about excessive pay. Shoring has been waging a personal war by writing missives on each of the two dozen proxy statements he gets as a shareholder, urging compensation committees to link CEO pay with the pay of the average worker.

"The CEO shouldn't get 150 times what the line worker gets," said Shoring, who used to be an insurance company executive. "The line worker is putting out the Coca-Cola or the tires or whatever. The guy on the top is coasting on the work of the people underneath."

Les Greenberg, chairman of the Committee of Concerned Shareholders in Los Angeles, said McDonough's comments were what some in the country wanted to hear. "But to restore investor confidence in the stock market, that needs to become a reality, not just empty talk."

In some cases, a CEO's pay may seem out of whack when it is actually appropriate for the performance the company has achieved-- but the plan may be poorly explained, both internally and externally, said Don Sagolla, who helps design CEO compensation plans as a principal at Mercer Human Resources Consulting in Los Angeles.

"This isn't a science, but investors need to be able to see the value that the compensation plan is providing," Sagolla said.

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