Jewish World Review Sept. 24, 2002 / 18 Tishrei, 5763
http://www.jewishworldreview.com | Memo to the Business Roundtable, the U.S. Chamber of Commerce and Andy Grove:
It's time to give up the fight. The clock is ticking. Investors are watching. And lawmakers are laying in wait. Runaway CEO compensation must be brought under control. And that's going to happen only if you and the companies you represent stop the stall tactics we saw again this week and start expensing stock options.
Greed is no longer good. In fact, even the perception of greed can have devastating consequences. Just ask Jack Welch. At least he recognized the changing mood and asked GE's board to cut back his controversial retirement package, getting rid of many of the goodies and getting him off the hot seat.
You ought to consider such a strategy - solving a problem quickly, and on your own terms, while you still have time.
Here's where we are: It's been a year since the Enron investigation uncovered epic corporate abuse - and still, nothing substantial has been done about CEO pay. Sure, some corporations have been shamed into paring back outlandish compensation packages. A study of 350 leading corporations by Mercer Human Resource Consulting found that median annual pay for CEOs - including salaries and bonuses - declined by 3 percent in 2001. But for the same period, corporate earnings for the S&P 500 fell by nearly 50 percent.
And this week, you gave another glaring example of how so many members of corporate America still don't get it.
I'm talking about the Conference Board's blue-ribbon commission and its broad new series of proposals to curb corporate excess. Among the group's suggestions:
- CEO pay and perks should be tied to goals other than short-term gains in stock price.
- Executives should have to hold company stock as long as regular employees do.
- Stock options should be treated as an expense.
When a group that includes such respected business leaders as Pete Peterson, Paul Volcker and Arthur Levitt calls for uniformly expensing stock options, it's big news.
Mr. Grove, I commend your participation in the commission. But the fact that you are so deeply involved in this issue yet still choose to dissent from the opinion of the group and disagree about the need to expense options is confounding. Nearly 80 percent of the increase in median CEO pay from 1992 to 2000 was due to gains in long-term incentives, in particular stock options, according to S&P.
I can understand why you're fighting the growing movement to expense stock options. The tech industry's earnings would be cut by 70 percent if options were expensed, according to Merrill Lynch. That's compared to a decline of 10 percent in the overall S&P 500.
But, Mr. Grove, we tried it your way, and it didn't work. Unfortunately, it's time technology faced the truth: The days of "anything goes" are over.
Even more frustrating was the Business Roundtable's reaction to the commission's findings. Apparently the best the Roundtable could come up with was to say the group made a "valuable contribution." The U.S. Chamber of Commerce merely reiterated that it remains opposed to options expensing.
That kind of non-responsive response is not just weak, it's inexcusable.
Because the reality is, if you and other business leaders don't fix the problem of rampant executive pay, Congress will step in. It did in 1993, placing a $1 million cap on the tax deductibility of corporate salaries. That had the unintended consequence of driving companies to compensate executives through options - landing us in the mess we're in today.
No one - except for the lawmakers themselves - wants to see Washington get involved if it doesn't have to.
As Pete Peterson warned this week, "Consider the public's attitude of fear because they've lost their retirement, the injustice because these guys are making millions of dollars while the company went bust, and the anger that goes with it. The congressional legislation on compensation could go out of control."
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