Seven To Ten

You’ll note that this year many companies are reporting the specific performance targets on which CEO pay is based - saying not just that pay is based partly on free cash flow, for example, but reporting the amount that must be achieved.

Companies are doing that because the SEC is making them. But by wangling pay formulas in a dozen ways, they can still pay CEOs as crazily as they like. Look, for example, at one of America’s legendary pay abusers, Occidental Petroleum.

Its latest proxy is full of impressive-looking targets and formulas, but the bottom line is that the company has consistently paid CEO Ray Irani huge sums during his 17 years at the top, regardless of performance, which has mostly been terrible.

Even the way boards are elected appears immune to reform. Since the number of board candidates exactly equals the number of vacant seats, shareholders who don’t like a candidate can only “withhold” their vote, so even one vote is enough to get a candidate elected.

A popular reform proposal would require a majority of votes cast. The theory is that directors who could get voted off the board will more zealously serve shareholders - and that includes getting tough on CEO pay. But the worry is that they’ll adopt the go-along-to-get-along culture of many boardrooms.

It may seem obvious that CEO raises will have to slow down, if only because of simple arithmetic. Pay that gallops ahead far faster than the economy is one of those things that can’t go on forever. If it did, then someday the entire GDP would be used for paying CEOs, and that isn’t likely.

Meanwhile, let the reformers battle on. One of the most prominent, Nell Minow of the invaluable Corporate Library, which rates board effectiveness, says, “My colleagues and I have found that there is no more reliable indicator of investment, litigation, and liability risk than excessive CEO compensation.”

Boards that can’t manage to pay the CEO properly are damaging the company, punishing the shareholders they represent, and weakening America in a global economy. It’s in everybody’s interest to turn them around - or at least to keep trying.