The politics of pay

The Economist: The politics of pay

The rewards of America's company bosses face yet more scrutiny and attack.

NOW there is nowhere for the bosses of corporate America to hide their bulging pay packets. In spite of years of defensive lobbying, they are having to reveal all under new Securities and Exchange Commission (SEC) rules that have just begun to take effect. This burst of sunlight could not have come at a worse time for them. It coincides with a shift in the control of Congress to the Democrats and the start of the presidential election campaign, in which “overpaid” chief executives will make an easy target.

Although barely one-tenth of the 2,000 biggest American companies have yet reported under the new rules, the tally of negative headlines is already mounting. “There are already plenty of examples of firms reporting chief-executive pay packages of millions of dollars more than expected,” says Paul Hodgson of the Corporate Library, a research firm. He reckons that the firms that have already reported are a representative sample likely to provide a good indication of the overall trend. Top of the heap so far is Ken Lewis, boss of Bank of America, with total pay in 2006 valued at $114.4m.

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In a study of 100 firms that have reported, Mr Hodgson found that the perks given to chief executives, though relatively small, were much higher than those reported last year under the old, less exacting, disclosure rules. On average, the amounts reported in 2006 under the heading “other annual compensation” in 2006 were $192,000—131% higher than in the corresponding category in 2005. One reason for this jump was that the new rules require the disclosure of all perks worth $10,000 or more, whereas the old rules allowed firms to keep quiet about anything worth less than $50,000.