What is promised to Wall St and what is promised to the CEO are not the same

In the past I wrote about how I admired how American Express is paying Ken Chenault. Two of my posts are:

But this past weekend a NY Times article finds that many companies are not as upfront as AmEx. The article is called If the Pay Fix Is in, Good Luck Finding It
by Gretchen Morgenson. Here are some blurbs that I liked:

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TWO years ago, when
the Securities and Exchange Commission began requiring companies to explain
performance targets used to calculate incentive pay for executives,
shareholders hoped that the rule would discourage fat compensation awards for
thin results.

With two years of data in hand, how is the new rule working? In some cases,
well — but in most, not at all.

According
to the most recent proxy filings, which covered 2007 results, only 47 percent
of the companies made the required disclosures concerning short-term incentive
pay, like cash bonuses. While this figure is substantially higher than the 23
percent that complied with the rule in 2006, it is nonetheless distressing.

On
long-term incentive pay, which typically includes grants of stock options or
restricted shares, the compliance was a more robust 62 percent last year. In
2006, only 41 percent of companies adhered to the rule, the Reda study showed.

When
it devised its disclosure rule, the S.E.C. gave companies a sizable loophole,
excusing them from detailed disclosure of targets if they believed that
publishing such figures would put them at a disadvantage in their industry.
Many companies — no surprise — make this claim.

Some
say, for example, that if they publicize their targets, competitors could hire
away their executives during years that performance benchmarks were not met and
bonuses were not dispensed.

James
F. Reda, founder of the firm that conducted the study, doesn’t buy that view.
“This argument of competitive harm is a pretty weak one,” he said. “I think
they don’t want the bright light to be shone on their situation because it
gives them the flexibility to give a bonus when it isn’t earned.”

Companies
may also be choosing not to disclose specific benchmarks because those figures
may be significantly different from financial targets that executives at these
corporations have promised Wall Street analysts and investors — indicating that
the boards in question are setting their bars too low and generating bonuses
too easily.

What bothers me the most about what is happening is this behavior feeds into the idea of “The Man” and “The Company” that is now being fictionally illustrated on several successful TV shows (24 and Prison Break for example). And why wouldn’t it? Productivity has increased at very healthy levels over the past 6 years but the income from those improvements has been sucked up by the executives that are fortunate to be in control of the company at the time of the success. I wrote about it in one of my first posts called Productivy Pays – The CEO. This entry highlights an article from CNNMoney.com from almost a year ago called GDP growth not reaching paychecks and CEO pay: 364 times more than workers. When stats like this come to light and the noncompliance by companies to the SEC when it is trying to create more transparency, it really shows that the average working man is a sucker.

About benleeson
My name is Ben Leeson. I currently work for a large financial company in IT. I went to school at Marist College in Poughkeepsie, NY. I graduated with a B.S. in Business Administration concentrating in HR. Professor William Brown taught me and I enjoyed his classes; even acquiring an appreciation for just about all things HR. I didn’t pursue a job in that field after college but I’ve kept up with it. This blog will further my fascination with all things HR. I hope to grow my knowledge of the area through thoughtful writings and spirited feedback. I will attempt to have a fairly routine style so anyone reading can come to expect certain segments. Please excuse my incorrect grammar and occasional misspelling.

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