Devoted to Managers and those that seek to improve their management skills

With the ouster of Home Depot's (HD) Bob Nardelli and his resultant compensation package that  was valued at about $210 million and Pfizer's (PFE) Henry A. McKinnell's which came to almost $200 million, it has brought the spotlight on excessive compensation packages for CEO's.

So far this year it looks like it may become the biggest issue at the annual meetings of public companies.
 
According to Donald Delves, a Chicago-based compensation consultant one positive outcome of all of this is that "There's a sort of silver lining to the whole Nardelli, Home Depot thing. At least the shareholders finally spoke up."

He's right. This is definitely an issue that has gotten out of control and needs to be brought under better discipline.

There are alls sorts of proposals being thrown around on how to handle this. Before we get into any of them, let's get rid of the one that needs to be forgotten about from the very beginning: legislation. Already you've go Rep. Barney Frank, D-Mass., saying he's going to introduce legislation on the matter. That's simply nuts. To me, that would be worse than any compensation package that could be offered to any CEO. This has nothing to do with the government or its role.

Let's look back at the Nardelli compensation package. In the end it was the people that made the difference as they demanded that if he was going to be paid that much then he needs to bring results that much. In the end, they got rid of him; although he still received his package.

That's a good sign, and shareholder need to hold their boards and CEOs accountable.

There has also been some organizations that have introduced what they call "say on pay" proposals, which asks that there be a nonbinding yes-or-no shareholder vote on pay packages of some companies. Timothy Smith, director of socially responsive investment at Walden Asset Management, said concerning that, "I think it's a rare board that's going to ignore it's owners." I believe that's true. If shareholders voted against something, even if it is nonbinding, and the board goes against it and approves it, then they would be highly accountable for whatever happens in the future. A good check-and-balance on the choices they make.

Another idea thrown out would be advisory boards that consist of shareholders who vote on executive pay packages and on ending the huge windfalls executives get when a company is sold.

The UK does things similar to this, and surprisingly, most of the time all the packages are approved. But the fact that people have a say in the matter is what's important in these cases. But there were times when they did vote against a powerful "golden parachute" packages that a CEOs would have received. So it wasn't simply a rubber stamp committee.
 
In all of this there is a legitimate concern for spreading the decisions for this issue out too far as John C. Wilcox, said, senior vice president and head of corporate governance at TIAA-CREF. "We don't want to micromanage the internal decisions of the company's management."
 
When all is said and done, I think that it really should be left unto the boards of public companies to make these decisions. But in saying that, they need to be much tougher in their scrutinizing of performance in comparison to pay. It's not that difficult to see that if an executive wants an increase in pay that is in the upper 80th percentile say, then their performance needs to be there as well. If not, let them earn their way there.

Do you think this is getting out of control? What's your solutions?