Debunking the Bashers

NELL MINOW of the Corporate Library is one of the leading crusaders against CEO compensation and we have published an interview with her (page 12) so that the CEO community can better defend itself. There are several flaws in her logic. She argues, for example, that CEOs of publicly traded companies

Why, then, did 129 CEOs of the largest 1,000 companies leave their jobs in 2005, according to a study published by Burson-Marsteller? That was a 43 percent increase from 2004, when 98 quit or were fired, and a 126 percent increase from 2000, when just 57 left their jobs. CEO "churn" is at record levels.

So it's just preposterous that CEOs are somehow above the fray. Ask Rick Wagoner at General Motors or Richard Parsons at Time Warner if they feel protected from market forces.

Minow also argues that CEOs control who sits on their board of directors and therefore control how much they get paid. Obviously, CEOs have influence, and should have an influence, on director selection, but do a majority of chief executives at public companies exercise outright control? No way. There has been an enormous push toward having more independent directors on boards.

A third fallacy is that boards have made absolutely no progress in connecting pay with performance. The reality is that there have been dramatic changes in the composition of CEO compensation, away from short-term stock options toward more longer-term deferred compensation.

Are there still abuses? Yes, the fact that Phil Purcell received almost $44 million in cash for walking away from Morgan Stanley is suspect. And so, too, are the efforts of top management at United Airlines and Delphi to secure huge levels of compensation while their companies are in bankruptcy.

But those are exceptions to the broader trend. Rather than sitting back and suffering the slings and arrows, CEOs and their boards ought to make it clear that progress has been made. The issue of CEO pay is one of the most damaging weapons that critics are using to argue that corporate leaders as a class are fundamentally dishonest and unethical. It's time to push back.