WSJ's Hymowitz: To Rein In CEOs' Pay, Why Not Consider Outsourcing the Pos

[question everything]

The Wall Street Journal

IN THE LEAD

By CAROL HYMOWITZ

To Rein In CEOs' Pay, Why Not Consider Outsourcing the Post?
July 19, 2005; Page B1

For several years now, chief executives of U.S. companies have been telling lots of employees that they have gotten too expensive. Since it is possible to find qualified but cheaper workers to write software and perform other labor in India, China, Turkey and dozens of other countries, it makes competitive sense, they say, to outsource jobs. Perhaps it is time for American CEOs to include themselves in this strategy. Certainly the directors who determine their compensation should take a close, hard look at the colossal sums they are offering and do some global-labor cost analysis.

(snip)

The median salary plus cash bonus for U.S. CEOs in office for at least a year totaled $2.3 million in 2004, according to an analysis of 421 large companies by Boardex, of London. That compares with $1.2 million for the heads of the 304 United Kingdom companies surveyed, $857,000 at 104 French companies and $386,000 at 95 Swedish concerns. The pay gap between U.S. and Asian business leaders is even larger. According to an analysis by Mercer Human Resource Consulting, the heads of the 248 Indian companies surveyed earned a median salary and bonus of $88,117 as of July 2004, compared with $317,864 for the heads of 187 Japanese companies, $302,078 at 174 Hong Kong companies and $263,301 at 394 Singapore concerns.

None of this means U.S. directors should disregard American management talent when filling CEO spots -- and pay fairly for it. What is galling is how rarely, even in a time of heightened governance sensitivity, compensation is linked to performance. Newly named CEOs are guaranteed a trough of money before they've done any work. When they fail and are dismissed, they are handed even more money. That is the case at Morgan Stanley, where ex-CEO Phil Purcell received a severance and retirement package estimated at $106 million, including a new $44 million cash bonus for being shown the door. Former Co-President Steve Crawford is walking away with two years of severance estimated at $32 million after 3½ months on that job.

(snip)

Indeed, a big portion of executive compensation, including rich guaranteed retirement payments and "stealth" benefits such as free lifetime use of corporate jets, are completely divorced from performance. Meanwhile, the gap between CEO pay and just about everyone else except investment bankers and hedge-fund managers keeps growing. Last year, the median salary and bonus for CEOs rose 14.5%, while paychecks of nonunion salaried staffers rose 3.4%, according to Mercer. In 1960, CEOs earned an average of two times as much as the president of the U.S.; today they earn an average 62 times as much as the president, notes Rakesh Khurana, a Harvard Business School professor.


So other than outsourcing CEO jobs, what's the solution? For starters, boards must stop rewarding incompetence. "When a CEO is dismissed, it usually means the company's performance has weakened, and you weaken it even more" if you then hand out exorbitant severance, Mr. Khurana says. In addition, directors must learn the art of "arm's length" negotiating and put a price tag on all forms of compensation so shareholders know what they are paying. It is shareholders' money, after all, that directors are giving away.

• E-mail comments to [e-mail]1. To see other recent columns, go to CareerJournal.com2

URL for this article:
http://online.wsj.com/article/0,,SB112173608093089025,00.html

[wli]

1. not a bad idea

Offshoring executives is a good idea.

[shraby]

2. They just now getting around to thinking

about it? I thought about it a few years ago. Sheesh.

[wli]

3. oh the site I mentioned has been around for years

The domain name was only recently transferred to dotster, though.