To the Editor:
On the “Opinions” page of the Aug. 5 edition of the’ Daily Chronicle, Bloomberg News correspondent Edward Kleinbard asks how we can address the issue of income inequality (“No defense for America’s income inequality”).
To determine executive compensation, the modern American organization appoints an executive compensation review panel composed of members of the board of directors.
The review panel compares CEO pay with what is offered at other similar-sized corporations. If the organization is successful, the review panel tries to place CEO compensation at the 80 percent level.
Thus the CEO of Coca-Cola may have his compensation determined based on what the CEOs at IBM and Ford receive.
This tends to drive front-office expenses and serves the shareholder poorly.
Kleinbard explains that the average CEO’s compensation rose from 29 times higher than average worker pay in 1979 to 231 times higher in 2011.
The Securities and Exchange Commission can stop this upward spiral with a simple rule change. Prohibit executive compensation review panels from using external parameters, which would force the review panels to use internal measurements.
The CEO will find his pay compared to the men on the loading dock and the women in the office, the folks who actually generate corporate profit.