NEW YORK - Executive pay at U.S. companies is still out of control, with only the smallest glimmer of hope for improvement, corporate governance experts said on Wednesday.
With the year-long bull market rescuing most stocks from a three-year slide, many executives are set to cash in on stock options this year and pick up hefty bonuses after a year of higher profits.
"Most chief executives are taking a deep breath because the pressure seems to be off," said veteran corporate reform expert Ira Millstein, senior partner at Weil Gotshal Manges, speaking at the Reuters Corporate Reform Summit.
U.S. CEOs now get paid more than 500 times what the average worker earns, according to a survey by Towers Perrin, compared to about 10 times in Japan. In 1980 it was only about 40 times.
The issue was largely ignored in the 1990s stock boom, but corporate fraud and plunging stock prices have alerted investors to CEOs' generous pay deals, which often seem mismatched with performance.
"There's only one way to solve the problem, and that's board action," said Millstein at the summit, which was held at Reuters U.S. headquarters in New York. "I don't know how you can set a cap on pay -- you can't legislate this one."
But boards are not doing a good job on this so far, he said, citing a survey by the National Association of Corporate Directors, showing that 66 percent of corporate boards rate themselves below par in regulating executive pay.
"We are quite animated" on the subject of executive pay, said Bill Patterson, director of the AFL-CIO office of investments, which handles about $400 billion in union-sponsored funds, also speaking at the summit.
"We are going to be placing more attention on the compensation committees, making sure pay packages are as commensurate as possible with performance, that pay is performance-based, decided upon by a process independent of the CEO," said Patterson, looking forward to the upcoming shareholder meeting season, where the AFL-CIO will challenge companies it thinks cannot back up their compensation policies.
"There must be a relationship between executive pay and the pay of front-line workers," said Patterson.
The issue of executive pay, which many identify as the acid test of meaningful corporate reform, should stay at the top of the agenda, said Millstein.
"These are the areas where boards need to dig in," he said. "But I don't see any easy road anywhere."
© 2004 Reuters Ltd