Human Capital & Careers

CEO Pay is Too High, Directors Say

Study finds that 81 percent of board members want to bolster the link between the performance of chief executives and their pay.
Stephen TaubOctober 11, 2006

Nearly 40 percent of directors believe that pay of chief executive officers is “too high in most cases,” according to a new survey.

Further, 81 percent of the board members favor increasing the link between CEO pay and performance, according to the 10th annual Corporate Board Effectiveness Study, which culled responses from 768 directors at roughly 660 of the 2,000 largest publicly-traded companies in the United States.

Nevertheless, despite the issuance of SEC’s new disclosure regulations and an increase in the time they expect to be spending in addressing CEO pay issues, 64 percent of directors said that they expect to see continued rises in CEO cash compensation. And 58 percent expect an increase in stock-based compensation, according to the study, which was conducted by the Center for Effective Organizations at the University of Southern California’s Marshall School of Business and Heidrick & Struggles, an executive search firm.

The survey respondents cited changes in the relationships between directors and corporate executives. For example, 81 percent of the board members reported that CEOs have “less control over their boards” than before. At the same time, 84 percent said that boards are spending more time on “monitoring activities and less on strategy.”

Ironically, the authors of another survey, by consultancy Steven Hall & Partners, reported several days ago that the median total pay for independent directors at the 500 largest U.S. companies increased 14 percent compared with last year, rising from $162,363 to $185,000.