"Overpaid" US executives

Many think US executives are overpaid but not many would expect the executives to say so. Well, in a poll carried out by the National Association of Corporate Directors, four out of six CEOs or presidents polled acknowledged this was the case, FT reports.

Four out of six chief executives or company presidents polled by the NACD in July and August said the compensation of top executives was high relative to their performance.

Only 2.2 per cent of the nearly 70 chief executives and presidents involved in the survey said compensation was too low, while a third deemed it “just right”.

Their views were backed up by outside directors, with more than 80 per cent of them saying chief executives were overpaid.

“There is an overall realisation that executive compensation is an area that boards and management are struggling with,” said Peter Gleason, chief operating officer of the NACD.

The issue is particularly sensitive because the gap between rich and poor in America has reached its widest point in more than 60 years.

Figures released last week showed the share of national income claimed by the wealthiest 1 per cent of Americans had reached 21.2 per cent – a postwar record – partly because of booming company profits.

This is not a problem that can be addressed by "restraint" among corporate executives- I can't see these guys practising self-denial. It cannot also be solved by boards of directors as they are constituted at present.

There is a fundamental problem with corporate boards- and this includes corporate boards. The "independent" directors are, in fact, chosen by CEOs and are beholden to them for the fat fee and commissions they get these days- in the US, $100,000 is pretty common. The figures I have seen in the papers for Indian boards are an average of Rs 9- 10 lakh. A CEO requests you to join the board and he pays you Rs 10 lakh - do you think many people would question the CEO or oppose the CEO in the knowledge that that would be the end of the goodies they get? Not a chance!

We will have truly "independent" directors only when institutional shareholders get to nominating directors on boards. Then, we will have directors independent of management. Today, the word "independent" is construed to mean anybody who does not have a pecuniary relationship with management. That's not enough- to be independent, a director must not owe his job to management.