Prominent UCLA law alum/LA lawyer Jim Barrall reports:
It was my special privilege and pleasure to serve as the moderator of The Conference Board Governance Center-sponsored debate between Charles Elson and Craig Ferrere of the John L. Weinberg Center for Corporate Governance at the University of Delaware, in one corner, and Ira Kay of Pay Governance LLC, in the other corner, on the subject of executive pay in the USA, held on January 18, 2013.
Simply put, this 90 minute exchange is the single best discussion on the subject of the causes and effects of peer group benchmarking, and on the subject of CEO pay in general, that I have ever heard in my many years of working in the executive pay and governance arena.
The catalyst for this friendly but intense debate was Charles and Craig’s paper, “Executive Superstars, Peer Groups and Overcompensation: Cause, Effect and Solution,” which argues that:
- Peer group benchmarking of CEO pay is not justified by market forces based on data which shows that over many years relatively few CEOs quit to take other CEO jobs
- There is little CEO mobility because CEO skills generally are not transferable
- Benchmarking CEO pay ratchets it up and has been the prime cause of its inexorable rise since World War II (punctuated only occasionally when stock market bubbles burst)
- Companies and investors would be better served by benchmarking CEO pay internally to that of other officers and
- Internal executive pay benchmarking is attracting support from investors and will become more influential.
Anyone who is in any way involved in designing or evaluating executive pay plans and practices should watch the video debate, take notes and then reflect on what Charles, Craig, and Ira have said. If I chaired a Compensation Committee, I would make it mandatory viewing for the committee, and would ask the company to note it as a best 2013 practice in the next CD&A.
The video or the debate is here:http://www.conferenceboard.org/directorroundtables/peergroups.