Soaring compensation for U.S. CEOs over the last 15 years has provoked widespread criticism, reports Knowledge@Wharton. According to a study by the Corporate Library, typical CEO compensation rose by 15% in 2003 and 30% in 2004, around ten times the rate of inflation. Recent proposals by the Securities and Exchange Commission (SEC) seek to address this problem by requiring firms to report the earnings of their five top executives and all directors. Disclosure should include the values of stock options, retirement and severance plans plus all perks worth over USD 100,000.
Yet inflation and workers' wage gains cannot be used to benchmark executive pay gains, claim Wharton professors. Several factors have boosted executive compensation including higher demand for skilled CEOs, the greater use of stock options, job hopping by managers forcing firms to bid more for talent and the strong performance of the U.S. economy, they add. Today's CEOs, who are often obliged to invest heavily in stock options, face serious losses if their company's share price falls and are demanding higher salaries to offset this risk, explain experts. In view of these factors, Wharton professors do not expect the new SEC rules to limit CEO compensation. However, experts agree that clearer disclosure could correct any imperfections in the current compensation system.
Full story: "SEC's Spotlight on Executive Pay: Will It Make a Difference" in Knowledge@Wharton (25 January - 7 February 2006).