I'm not a believer in regulating executive compensation packages. However, when legislation finally occurs, the executives have no one to blame but themselves.
Right now Bob Nardelli is in the news for his "excessive" severance package. While the terms of severance were negotiated up front in his initial contract, I would offer that the initial contract was not written in a fair market value sense.
Let me explain. Executive compensation is usually determined by a compensation committee of various board members and the compensation committee will usually hire a compensation "consultant" who submits a report on the appropriate compensation.
Let's assume old Gordon is the compensation consultant for ABC Corp. Gordon knows that the members of the compensation committees are also CEO's of their respective companies and he would like to continue in this consulting line of work. Do you think I a) submit a report showing an appropriate income of $250 thousand a year or b) $250 million a year for the CEO of ABC.
If you answer "a", you probably need to get your resume together because there won't be many compensation gigs coming your way in the near future.
If you would like to continue your career as a compensation consultant, the correct answer is "b".
What's even more rich about the whole scheme is now that I've determined that the CEO of ABC is $250 million I can now use that as a comparison when I establish the CEO's compensation for XYZ corp which I believe is a more "difficult" job for who knows what reason. So I'll now decide the appropriate compensation is $260 million and on and on......
Think of it this way. How much would you be making, if you got to hire an appraiser (paid by you) and simply submitted the report to your boss for your next raise? I'm guessing there's a celebration in the future.
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