It’s time to stop super-sizing executive pay

With the presidential election campaign under way lo these many years – at least that’s how long it’s been going on in New Hampshire – a long-dormant, yet unresolved, issue should re-emerge in the coming weeks.

The topic is executive pay, something that had briefly raised the ire of shareholders everywhere but was subsequently relegated to the back burner.

Fortunately – or unfortunately, if you happen to be a shareholder in Walt Disney Co. – the recent civil trial over the mind-boggling level of compensation paid to Michael Ovitz, the former Disney president and CEO-in-waiting, will no doubt raise awareness of an issue that should concern all of us.

Ovitz’s compensation was so out of proportion it almost seems comical that such a package would exist. It included a $1 million-a-year salary, an annual $7.5 million bonus and 5 million stock options valued at $107.1 million. It also granted Ovitz a payment of $10 million, in addition to his salary and bonus, through September 2000 and immediate vesting of all of his stock options if he was given a nonfault termination by Disney, which he was after 14 months. His severance package was worth $140 million – for 14 months’ work.

Not surprisingly, some Disney shareholders filed suit over Ovitz’s compensation.

The fault, as with almost all excessive compensation packages, lies not with Ovitz but with the Disney board of directors – a bunch of supposed luminaries who give rubber stamps a bad name.

The good news is that Securities and Exchange Commission Chairman William Donaldson is making noises over the often obscene level of executive pay.

Donaldson, in fact, recently criticized both the level of executive pay and the quality with which such information is disclosed to shareholders. He pointed to the “obfuscation about who’s being paid what” and called for new rules over how compensation information is given to shareholders.

It’s about time that an SEC chairman has not only spoken out about executive compensation, but has done so with the interests of the shareholder in mind. But, as with all things that emerge from Washington, it’s best not to hold your breath over when these changes will happen. All we know is that whenever they come they will be long, long overdue.

Categories: News