on Aug 31st, 2007SEC Finally Wakes Up and Sniffs the CEO Compensation Coffee
One of the few pleasures of waking up early before heading off to work in the morning is the smell of a fresh-brewed pot of coffee. That first sip does wonders for energizing the body and mind into the realization that if you don’t get out of bed then there’s no paycheck at the end of the week.
CEOs enjoy that first sip as well, but most likely it’s served to them in bed by a properly attired maid. This morning’s Wall Street Journal details the SEC’s first attempt at making corporations disclose CEO compensation packages and the logic that goes into how they are calculated. Note that word logic, because in the past these packages seem to have been calculated as if the CEO were a market seller with his hand on the scale.
Excuse me, but CEOs are running PUBLIC COMPANIES. If you want someone to buy the stock, then you are required to disclose any factors that might influence the performance of the company. Since a CEO’s compensation package siphons off a dramatic chunk of change from the corporation’s operating revenues, guess what, the size of that package just might impact the bottom line.
Read this ridiculous statement: In the case of Pfizer, the SEC asked the big drug maker to more fully describe the work performed by the board’s independent pay consultant. “I don’t think this kind of detail will be of additional benefit to investors,” sniffed a person familiar with the situation. “Do they want [Pfizer] to tell how many Diet Cokes he drank at the meetings?”
Don’t you love how he (or she) misdirects the conversation by equating CEO compensation to the value of a Diet Coke! Get real, pal. If you hire a pay consultant to outline the CRITERIA that justifies a CEO’s compensation package, then that information is DIRECTLY related to understanding a company’s valuation.
The argument that disclosing the relationship between a CEO’s performance and company goals is also bogus. If I’m the owner of an NFL football team and I tell you I intend to win the Super Bowl, have I disclosed HOW I’m going to do it? No! The HOW is the magic formula; the GOAL is criteria by which the team owner will be judged.
The SEC needs to start protecting the integrity of publicly-traded companies. They are not piggy banks designed to be broken for the sake of a masked CEO jumping out of a plane with his golden parachute.
SEC Asks Firms to Detail Top Executives’ Pay