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Sunday, February 12, 2006

Pay More; Get Less

James Surowiecki considers the state of executive compensation in the most recent issue of The New Yorker. The SEC, dominated by Republicans, has issued new rules that require companies to tell us what they pay their C.E.O.s. This should have been a cause for celebration. Companies can still pay whatever they want, they just have to tell about it now. Shareholders are becoming concerned and it would appear with good reason. The immense pay packages are affecting the bottom line. Consider the following:

>A study done recently at Rutgers that examined company performance from 1992 to 2001, found that the more a C.E.O. was paid relative to his peers, "the more likely his company was to underperform in the stock market;

>some packages, especially those with "golden parachutes" which guarantee huge payoffs if their companies are acquiired, encourage executives to sell out;

>there is evidence that exeuctives whose pay is linked to stock performance are more likely to commit fraud to jack up the stock portfolios;

>between 1993 and 2003 "the top five executives at fifteen hundred companies in the U.S. were paid $350,000,000,000 [yes, you read that correctly, billion].
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