Nation’s chief exec enters CEO pay fray
President Bush stepped into the swirling debate over executive pay on Wednesday, saying that corporate directors, not government officials, should be the ones to judge whether chief executives are earning their keep.
“Government should not decide the compensation for America’s corporate executives, but the salaries and bonuses of CEOs should be based on their success at improving their companies and bringing value to their shareholders,” Bush told business leaders gathered at historic Federal Hall in Lower Manhattan.
“America’s corporate boardrooms must step up to their responsibilities,” Bush said. “You need to pay attention to the executive compensation packages that you approve.”
The Republican president’s comments came a day after the Democratic-led Senate agreed to vote on a measure that would limit the amount of executive pay eligible for tax-free deferral. The bill was introduced amid widening criticism of corporate compensation packages that guarantee huge paychecks, even for executives who don’t succeed.
Last month, for example, Bob Nardelli was forced out as the chief executive of Home Depot Inc., walking away with stock-based compensation and severance pay valued at $210 million. During his tenure, the company’s shares lost 12%.
Corporate-governance activists were pleased to hear Bush call on corporate directors to do their jobs but said his comments were unlikely to stem the trend of rising pay. They pointed out that Bush devoted only a few sentences to the topic at the end of a speech on the economy.
“It’s a little late for him to comment on this situation that has caused so much controversy over the past five years,” said Paul Hodgson, senior research associate at Corporate Library, a Maine-based firm that studies executive compensation and related issues. “It’s very clear that he’s not going to take any legislative action in this area.”
Brian Foley, an executive-compensation expert in White Plains, N.Y., agreed with Bush that the government should not set pay levels. But he said the president could have spoken out more forcefully.
“He certainly could have been a little more pointed and used the bully pulpit to say we need more restraint in the corner office,” Foley said.
Bush’s mention of CEO pay set off a mini-firestorm in executive-compensation circles as consultants and lawyers took note of the message the president had conveyed.
There was so much e-mailing going on, “I was surprised we didn’t have a brownout,” said Bob Profusek, a lawyer at Jones Day in New York.
Profusek says executive pay is not a problem and corporate directors work hard to be fair. Some who hold that belief seemed to think the president had turned against them.
“It was, ‘Can you believe this? Even Bush has jumped on this bandwagon,’ ” Profusek said.
The president made his comments at the end of a state-of-the-economy address across the street from the New York Stock Exchange. Federal Hall is where George Washington was inaugurated.
“I like to call him George W.,” Bush joked during the talk.
After dwelling on the economy only briefly in his State of the Union speech last week, Bush is trumpeting the economy’s strong performance as he stumps for domestic policy goals, such as extending tax cuts.
On Wednesday, Bush laid out policy proposals in four broad areas -- trade, healthcare, energy and education.
While calling the economy vibrant, Bush spoke to concerns that globalization and a wave of corporate mergers were stoking job fears.
“By and large, our dynamic and innovative economy has helped Americans live better and more comfortable lives,” Bush said, but he acknowledged that “for many Americans, change means having to find a new job, or to deal with a new boss after a merger or to go back to school to learn new skills for a new career.”
He also said that improvements in public education were the best way to address the disparity in pay between rich and poor.
“The fact is that income inequality is real,” Bush said, adding: “The earnings gap is now twice as wide as it was in 1980 -- and it continues to grow.”
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