Tossing the Big-Bucks Blame Around

There's been a lot of vitriol tossed about recently regarding executive pay. And it's not hard to understand the anger of most of us non-CEOs, struggling with a deepening recession and widening pools of layoffs. How is it that Dean Scarborough, chief executive of Avery Dennison, can get a 245% (no, that's not missing a decimal point) increase in his total compensation from 2007 to 2008 (to $6.44 million), when his company's overall performance was down 35%?

I have nothing against Mr. Scarborough; I don't know him and I'm not invested in Avery Dennison. He's just an example, and he's hardly alone. I picked him pretty much at random from a table of 2008 compensation for 200 chief executive officers of large public companies published by the New York Times on Sunday.

But -- at risk of being hit by some of that flying acid -- I really wonder if Mr. Scarborough and his fellow executives are the proper target. It's corporate boards of directors, after all, who set and approve executive compensation. And the relationship between boards and chief executive officers (who are, all too often, also chairmen of those boards) has been and continues to be way too cozy.

Even when the intentions have been good, the results have often been bad. When a CEO appears to perform well for Company A (and don't get me started on the subject of short-term results vs long-term...), the board not surprisingly jumps on the pay-for-performance bandwagon, and ups his or her pay. Since there are several other companies competing in Company A's marketplace, the board looks at what those other companies pay their CEOs, and makes sure that their CEO's compensation package is above the average. But all the other boards in that marketplace are doing the same thing -- it's the Lake Woebegone effect, where, as Garrison Keiller put it, "all the children are above average."

Good chief executive officers are indeed a rare breed, and deserve to be well-compensated. But: who determines that a particular CEO is "good", and how is that determination made? Should the board alone make that determination? Is the company's stock price the only factor? (Apparently not, given the examples found by the Times)