On the Money
from
September/October 2006
by John R. Engen
CEO pay as it is now sits just fine with some folks—a group that most likely includes beneficiaries of the more notorious packages, notably Lee Raymond, 67, the departing head of Exxon Mobil. His goodbye take has been valued at $405 million, which includes $69.7 million in total comp for 2005 (the last of his 12 years on the job), all kinds of options, and $98.4 million in pension benefits. William W. McGuire of the Minneapolis insurer UnitedHealth Group was sitting on some $1.6 billion in unrealized exercisable option gains at the end of 2005, on top of his $10 million in salary, bonus, and incentive awards.
To some scholars, CEO pay is not that big an issue. That’s certainly the unfashionable view of economists Xavier Gabaix of MIT and Augustin Landier of New York University’s Stern School of Business. A recent study by this brace of academics found that while total CEO compensation at 500 large companies increased sixfold between 1980 and 2003, so did those same companies’ market capitalization. And that’s what usually counts among the big institutional shareholders that control the majority of outstanding shares. “If you have clear disclosure and the pay is commensurate with performance, most investors won’t have any concerns,” says Robert McCormick, a vice president at Glass Lewis & Co., a San Francisco investment and proxy advisory firm.
