Misguided Attacks on Executive Pay Hurt Shareholders

President Clinton, the Congress, the Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), and the IRS have all charged that US executives are dramatically overpaid, and that their pay is not sensitive to their companies' performance. The facts show, however, that executive compensation is working quite well. Many critics use the percentage return to shareholders as the key performance measure. While this is not wrong, it tells only half of the story. The other half is told by evaluating the total dollars created for all shareholders during the CEO's tenure. The real test of executive compensation is how well it motivates and retains an organization's top talent, provides rewards commensurate with results, and unites executive and shareholder goals. Properly structured, executive pay for performance can maintain significant opportunities for reward and lead to better board-shareholder-executive relations.