In a divorce, it's the little ones who get hurt worst.

Take the case of Jack Welch, former chairman and CEO of General Electric. In the middle of a widely reported breakup with estranged wife Jane Beasley Welch, Welch -- and his former employer -- found themselves facing a public relations nightmare in September. According to court papers filed by Jane Beasley Welch, General Electric was apparently paying its retired CEO a king's ransom to serve as a part-time consultant and full-time flier of the General Electric flag.

As part of Welch's consulting/pension package, shareholders were apparently picking up the tab for a Manhattan apartment, room service from Jean-Georges, and satellite television at Jack's four homes. GE's board was also providing Welch with "continued lifetime access to Company facilities and services comparable to those which were made available to him by the Company just prior to his retirement," according to a company proxy. In further appreciation of his years of distinguished service, GE also presented Welch with courtside seats at New York Knicks games -- a present better left unwrapped.

In the aftermath of the pillorying, however, a sheepish Welch agreed to pay the company back for his use of its "facilities and services." GE's directors went even further. In November, the board passed a raft of corporate governance changes. One of the moves: Outside directors at GE will meet without management present at least three times a year.

Widely hailed by shareholder rights activists, GE's move was hardly a stunner. Under proposed corporate governance standards issued by the New York Stock Exchange (NYSE) in August, non-management directors at NYSE-listed companies (like GE) must meet without management on a regular basis.

The stock exchange proposal did not generate much press coverage at the time. In fact, with all the attention being paid to board audit committees of late, the newfound independence of compensation committees has been overlooked by many in the business press.

But some observers believe the growing sway of compensation committees could have an impact on the bankbooks of senior executives. For one thing, committee members who meet more often in private will likely be tougher negotiators when dealing with under-performing CEOs and CFOs. And in fact, GE's board named its compensation committee chair, Andrew Sigler, to run those non-management meetings.

Naming the comp committee chief to oversee the broader non-management group seems sure to clinch a spot for executive pay at the top of the agenda at those meetings. What's more, more independent compensation committees will undoubtedly be more skeptical of management requests for pay boosts -- particularly if directors are puzzled by company financials. Like audit committees on the accounting front, compensation committees are likely to become the last word on questions of executive pay.

Pushed by the NYSE proposal, which will almost certainly win approval from the Securities and Exchange Commission, outside directors are likely to spend more quality time together behind doors closed to senior management. At those sessions, they're sure to get an earful from comp committee members about the pay of top executives relative to their corporate performance.

Indeed, the days of rubber-stamping compensation packages for powerful senior executives may be coming to an end. "With performance and stock prices being so underwater at many companies," says Charles Elson, director of the Center for Corporate Governance at the University of Delaware, "the concern [is] that you're seeing ever-increasing levels of compensation in an era of decreasing corporate profitability."

Free to Be Me
Certainly, recent revelations about over-the-top executive pay packages at bankrupt companies like Enron and WorldCom have made executive pay a hot topic in boardrooms. Expect those discussions to get even more heated, too. With CEOs and CFOs increasingly absent from meetings, outside directors will "talk more freely about [management] performance," says Elson "And comp factors into that."

On the other hand, the exclusive sessions are no panacea for the excesses of executive comp, critics say. "The problem is, what's supposed to be going on behind those closed doors?" says Peter Clapman, senior vice president and chief counsel for corporate governance for TIAA-CREF, the huge teachers' pension fund. "Shareholders are not going to know about this until decisions are made."

Independence alone, apparently, does not a truly effective manager of executive comp make. Seemingly independent comp committees have overused stock options and approved their use in ways "that did not produce an alignment of interests" between managers and shareholders, Clapman asserts.

Other NYSE proposals, however, seem particularly primed to push compensation committees to engineer such linkups. Under one provision, for example, comp committees would be given sole authority to hire and fire compensation consultants. (To see how that provision could touch off battles inside corporate boardrooms, see "Gunfight at the Comp Committee Corral.")

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