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Executive Pay Watch

The SEC wrestles with how to curb abuses in executive compensation.

11:00 PM, Jan 23, 2006 • By IRWIN M. STELZER
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There are two ways to fix the problem. One would be to put some ceiling on executive compensation. As the gap between executive pay and shop-floor pay has widened, pressure to do just that is increasing, for two reasons. First, it sometimes is the case that the CEO who has the unfortunate chore of laying off staff receives large bonuses for improving profitability, making it seem as if the capitalist system rewards the ax-wielder. Second, the gap between shop-floor pay and executive-suite pay has been widening, as globalization of labor markets bites into the pay of the average worker, while top executives benefit financially from the expanded global reach of their companies.

The better solution is to make the process by which executive compensation is set transparent. That would subject compensation to the review of the shareholder-owners of the company and to such restraints as institutional shareholders might be able to put on compensation packages. And perhaps at least some executives who know their compensation will be a matter for public scrutiny, even if they are never attacked by an angry spouse, will rediscover the virtues of self-restraint in order to avoid Welch-style embarrassment. That's what Chris Cox and his SEC are hoping.

Irwin M. Stelzer is director of economic policy studies at the Hudson Institute, a columnist for the Sunday Times (London), a contributing editor to The Weekly Standard, and a contributing writer to The Daily Standard.