Comments on: Redefining the CEO Role http://blogs.law.harvard.edu/corpgov/2009/04/16/redefining-the-ceo-role/ A law and economics blog from the Harvard Law School Program on Corporate Governance that gathers the latest news, opinion and research pertaining to corporate governance and financial regulation. Tue, 03 Aug 2010 15:55:47 +0000 hourly 1 http://wordpress.org/?v=3.0.1 By: Chris http://blogs.law.harvard.edu/corpgov/2009/04/16/redefining-the-ceo-role/comment-page-1/#comment-231659 Chris Sun, 19 Apr 2009 23:11:20 +0000 http://blogs.law.harvard.edu/corpgov/?p=961#comment-231659 "Like the companies they run and oversee, CEOs and boards of directors in the financial sector have been battered by the credit meltdown. The witch’s brew of high leverage, poor risk management, creation of toxic assets, and faulty business judgments—made more poisonous by excessive short-term executive pay—are seen as failures of an unprecedented magnitude. The result: Credibility has eroded, trust has dissolved, and financial re-regulation seems inevitable." I understand what you are saying. Look at this guy: A chief executive officer of a Standard & Poor's 500 company was paid, on average, $10.4 million in total compensation in 2008, according to preliminary data from The Corporate Library. Excessive executive compensation has taken center stage since the government bailout of banks that began in September 2008. Americans have expressed outrage as CEOs and other executives responsible for the financial crisis have pocketed millions of dollars from bonuses and golden parachutes. CEO perks alone grew in 2008 to an average of $336,248—or nine times the median salary of a full-time worker. Meanwhile, the economy tanked for working people while many companies were bailed out with more than $700 billion in taxpayer money, as well as low-interest loans and guarantees. “Like the companies they run and oversee, CEOs and boards of directors in the financial sector have been battered by the credit meltdown. The witch’s brew of high leverage, poor risk management, creation of toxic assets, and faulty business judgments—made more poisonous by excessive short-term executive pay—are seen as failures of an unprecedented magnitude. The result: Credibility has eroded, trust has dissolved, and financial re-regulation seems inevitable.”

I understand what you are saying. Look at this guy: A chief executive officer of a Standard & Poor’s 500 company was paid, on average, $10.4 million in total compensation in 2008, according to preliminary data from The Corporate Library.

Excessive executive compensation has taken center stage since the government bailout of banks that began in September 2008. Americans have expressed outrage as CEOs and other executives responsible for the financial crisis have pocketed millions of dollars from bonuses and golden parachutes. CEO perks alone grew in 2008 to an average of $336,248—or nine times the median salary of a full-time worker. Meanwhile, the economy tanked for working people while many companies were bailed out with more than $700 billion in taxpayer money, as well as low-interest loans and guarantees.

]]> By: Douglas Park http://blogs.law.harvard.edu/corpgov/2009/04/16/redefining-the-ceo-role/comment-page-1/#comment-231632 Douglas Park Sun, 19 Apr 2009 22:52:29 +0000 http://blogs.law.harvard.edu/corpgov/?p=961#comment-231632 One obstacle to creating executive compensation plans is determining the relevant measures of performance. What exactly should the CEO be compensated for, and when? Take the case of variable equity compensation. As Mr. Blankfein mentions, share price has long been the barometer for variable equity compensation. But how tightly is share price either correlated with, or causally linked, to the CEO's actions? Some actions have immediate, but only short term effects. The effects of other actions may be time lagged, and therefore more difficult to causally tie to prior actions. This is just one question that executive compensation analysts and boards must confront. One obstacle to creating executive compensation plans is determining the relevant measures of performance. What exactly should the CEO be compensated for, and when? Take the case of variable equity compensation. As Mr. Blankfein mentions, share price has long been the barometer for variable equity compensation. But how tightly is share price either correlated with, or causally linked, to the CEO’s actions? Some actions have immediate, but only short term effects. The effects of other actions may be time lagged, and therefore more difficult to causally tie to prior actions. This is just one question that executive compensation analysts and boards must confront.

]]> By: ddbb http://blogs.law.harvard.edu/corpgov/2009/04/16/redefining-the-ceo-role/comment-page-1/#comment-227536 ddbb Thu, 16 Apr 2009 16:16:09 +0000 http://blogs.law.harvard.edu/corpgov/?p=961#comment-227536 How is any of this different from current practices, except that the economy is bad? Unless your real suggestion is "only operate in a good economy," there is nothing in this article that is not current practice. I would like to see an example of a company whose policies and disclosures do not already echo these sentiments in substance. In addition, statements like "The amount awarded in the first year should be increased, stay the same, or be reduced at vesting depending on relative comparisons with peers both for total shareholder return and economic performance" do not exactly take a stand on anything or change anything not currently practiced. There is no lack of regulation or redundancy in corporate governance. I do not think more extensive corporate policies and paper-pushing is the answer. The real answer is to figure out what went wrong from a business perspective and why. Considering the widespread fallout which followed several years of regulation and general navel-gazing about governance issues and the roles of boards and executives and compensation, focusing on additional governance issues seems misplaced. How is any of this different from current practices, except that the economy is bad? Unless your real suggestion is “only operate in a good economy,” there is nothing in this article that is not current practice. I would like to see an example of a company whose policies and disclosures do not already echo these sentiments in substance.

In addition, statements like “The amount awarded in the first year should be increased, stay the same, or be reduced at vesting depending on relative comparisons with peers both for total shareholder return and economic performance” do not exactly take a stand on anything or change anything not currently practiced.

There is no lack of regulation or redundancy in corporate governance. I do not think more extensive corporate policies and paper-pushing is the answer. The real answer is to figure out what went wrong from a business perspective and why. Considering the widespread fallout which followed several years of regulation and general navel-gazing about governance issues and the roles of boards and executives and compensation, focusing on additional governance issues seems misplaced.

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