Human Capital & Careers

CEOs Don’t Earn Their Pay, Execs Agree

Corporate board members say so in a landslide. Lucky for CFOs, they are next in the succession line.
Alan RappeportOctober 15, 2007

Criticism of executive pay continues to rise and has begun to emanate from an unexpected place: the C-suite itself. A survey released Monday by the National Association of Corporate Directors finds that even most corporate leaders feel chief executives fail to earn their keep.

The NACD polled 791 people who have served on the board of a public company, and nearly 70 CEOs or presidents. Two-thirds of respondents said the level of CEO compensation relative to their performance was “somewhat high” or “too high.” Just 2.2 percent thought compensation was “too low,” while nearly a third said CEOs are paid “just right.”

Although chief executives are usually charged with setting performance measures, 58.8 percent of respondents said the reason for overcompensated CEOs is a lack of real performance objectives and evaluation. Further, 47.8 percent said rewards bore little connection to future corporate performance. And 39.6 percent faulted “undue CEO domination of the process” as the reason for exorbitant pay.

With everyone seemingly ganging up on the CEO, it might comfort some that 56.3 percent of those surveyed said that their board has a formal CEO succession plan. Good news for the CFO is that most of those queried consider the finance chief to be a natural choice to take the top job.

“Functionally, besides current and former CEOs, the experience respondents sought the most for their boards was that of a finance specialist, such as a CFO; with external audit experience in third place,” NACD said in its report on the survey.

Searches for CEO successors are commonly extending to different types of executive officers, and CFOs are the most prevalent, with 97.6 percent of those polled saying their companies have one. Chief legal officer, executive vice president, and chief information officer were far behind in terms of prevalence, at 68.6 percent, 58.8 percent, and 54.5 percent, respectively.

The survey comes as executive pay has been under close scrutiny by regulators. Last week the Securities and Exchange Commission summarized its take on the first year of its compensation disclosure rules. The SEC said it wants more analysis of how and why companies pay their top executives what they do, and more concise presentation of the compensation data.

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