Is CEO comp criticism valid? Boards are caught between pay critics and market realities.

Long a popular pursuit in union halls and at Green Party gatherings, criticism of CEO compensation now has become a mainstream cause celebre in America. The ideological din accusing company chieftains of raking in corrupt levels of pay and benefits has reached unprecedented levels--and is finally leaching into corporate governance itself.

Beneath the rising public fever on this issue, there's a cool truth: CEO pay overall simply hasn't exploded to irresponsible or even just outlandish levels. In fact, it has risen only relatively modestly over the last few years. And, based on their companies' robust returns to shareholders, it's even possible to argue that big-company CEOs in the U.S. haven't been getting nearly the rewards they deserve.

Consider the latest annual compensation study by Mercer Human Resource Consulting: While the median change in CEO total direct compensation was 8.9 percent last year at the 350 large public companies surveyed, corporate net income increased by a much larger 14.4 percent, up from 13 percent in 2005, and total shareholder return was 15.1 percent, more than double the 6.8 percent of 2005. Meanwhile, the increase in total cash compensation for constant, incumbent CEOs was 7.1 percent--the same rate as in 2005.

What's more, today's CEO compensation packages are usually closely aligned with performance. That's why there has been little squawking, for example, over the $10 million pay package for Mark Hurd, the CEO who doubled the market capitalization of Hewlett-Packard and restored the company to computer industry primacy over Dell. Neither has there been much grumbling over Bank of America CEO Kenneth Lewis's 2006 pay package of $28 million, or over his exercising $77 million in options--because the company's shares surged more than 13 percent last year.

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"The U.S. executive-pay model is working extremely well in that there's robust pay for performance, and it has created enormous amounts of shareholder value," asserts Ira Kay, executive-compensation consultant for Watson Wyatt, New York, and coauthor of a new book, The Myths and Realities of Executive Pay.

A Seller's Market

These realities offer a beacon of hope for board members and others who must cut through public criticism of CEO compensation and actually determine what corporate chiefs get paid. Despite the controversy over pay, the marketplace continues to acknowledge the special and often rare talents that CEOs bring, rewarding them for their leadership of high-performing companies and turning around of corporate laggards.