Wednesday, October 04, 2006

Padding the Payroll

Back in the 1980s, we law firm associates joked about our lockstep pay raises. The "going rate," someone quipped, was the lowest amount firms could pay without all of us "going." For some reason we found this hilarious. (The same reason, probably, why we thought we looked good in those "power suits.")

By today’s standards this wisecrack barely registers on the sarcasm scale. The concept, however, is still a useful one. In theory, this is how pay is determined in Proxyland: Whenever you see the word “retain” in a compensation committee report – and you almost always will - you’re supposed to think that every element of a CEO’s package has been calibrated to the precise level that will keep him from going.

In his Economix column in today’s New York Times, David Leonhardt punches a nice big hole in this myth. Describing how Oakland A's general manager extraordinaire Billy Beane politely declined to meet the salary demands of his ace on-field manager, Ken Macha, then held firm while Macha walked, Leonhardt remarks:

"You’d never see this in corporate America…The negotiation over a chief executive’s pay is one that never seems to fail, which, of course, means that it isn’t much of a negotiation at all. It’s more like a friendly conversation."

Well said. But it’s even worse than that. The newfound popularity of "tally sheets" makes embarrassingly clear that, until recently, many boards had no idea how much they were actually paying. A hell of a way to enter a negotiation, no matter how big your shoulder pads.

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