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CEO Pay May Not Be as Big an Issue as it’s Built Up to Be

It’s clear that the zeitgeist has turned against outsized CEO compensation. But corporate boards of directors, and even rank-and-file shareholders, aren’t necessarily falling into the opposite camp these days when hot-button issues such as golden parachutes or exorbitant pay for business chiefs reach them for a vote. This is a perhaps-unexpected reality that some CEOs might be able to take to the bank.

Many financially strapped Americans say they’re fed up with ever-rising compensation for CEOs while average workers continue to bump along the economic bottom. Meanwhile,  politicians and liberal activists are all too happy to tap into and attempt to inflame such sentiments. But such popular resentment doesn’t necessarily translate into similar convictions by board members or investors, in part because they tend to weigh many considerations, including the fact that stock-market returns have been so strong lately. They also know how difficult it is to find CEOs capable of navigating today’s roiled business waters.

“Some companies are good at reinvesting in employees, but it’s about helping them become better employees. We invest resources to help our employees become better people.”

While the volume of corporate takeovers this year has almost doubled, only one company—PacWest Bancorp—has failed to get shareholder support for lucrative severance packages that follow senior executives out the door, according to The Wall Street Journal. That total was down from nine last year, according to pay advisor Towers Watson. Defenders of golden parachutes say they can create value for investors by taking away the incentive to oppose a sale that might benefit shareholders, if the CEO fears losing income.

And, of course, directors typically are free to decide what they want to do because shareholder votes are non-binding. That’s exactly what has happened at Nabors Industries Ltd., which keeps giving top officers generous compensation packages and luscious perks despite shareholder opposition. The board of the Bermuda-based oil driller failed its first say-on-pay vote in 2011 amid concerns over a $100-million payout to retiring CEO Eugene Isenberg, the Journal noted.

And in another failed vote this year, shareholders expressed concern that a $45-million payment to restructure the compensation package of new CEO Anthony Petrello was excessive. In response, Nabors moved two directors off the board’s compensation committee.

Other companies also have dug in their heels on the executive-pay issue despite repeated investor protests in the form of votes at annual meetings—often, companies whose founders still run the business, the Journal said. One of them is Larry Ellison, founder and CEO of Oracle, and last year’s highest-paid CEO with a pay package valued at almost $77 million.

Most CEOs don’t have the rarefied status of an Ellison. But at least the relative quiescence by shareholders on the pay-ratio issue and other matters of growing compensation, and boards as a backstop, mean that other business chiefs might not be as threatened as they fear.

About Dale Buss

Dale Buss
Dale Buss is a long-time contributor to Chief Executive, Forbes, The Wall Street Journal and other top-flight business publications. He lives in Michigan.