Have executive compensation packages grown too large?
A United States House of Representatives standing committee is conducting hearings on corporate accountability. Currently, the House Committee on Oversight and Government Reform is inquiring into the issue of executive compensation. Notwithstanding their political convictions or incomes, the majority of Americans believe that business leaders are overpaid. Consequently, political leaders are concerned about the income gap in America as compared with the bonuses, stock options and compensation awarded to corporate executives.
In December, the committee held a hearing to examine the role of external compensation consultants in setting executive pay. The committee found widespread conflicts of interest by consultants providing both executive compensation advice and other services to a single company. When a consultant provides advice on compensation to senior executives while concurrently advising the company, at the request of these executives, on such subjects as employee benefit administration and human resources management, the consultant’s impartiality can be compromised.
More recently the committee heard testimony regarding the compensation of three CEOs of companies involved in the US mortgage crisis. The question addressed by the committee was whether the senior executives of non-performing companies should receive multi-million dollar compensation packages. Such compensation under such circumstances is not in the interests of the companies’ shareholders. For example, the former CEO of Citigroup left the company last November with a golden parachute worth $68 million, while the company has written off approximately $20 billion in losses and the stock price has dropped over 60% since last year.
The investigation is not without critics. Republicans on the committee argue that the primary role of the committee is to investigate waste, fraud and abuse in the federal government. This investigation, they argue, is a search for scapegoats for the subprime crisis. Moreover, executives who were paid in stock suffered losses alongside other shareholders.
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