Bush criticizes excessive CEO pay

Wall Street speech sets off wide discussion of issue Democrats are taking up

February 01, 2007|By Walter Hamilton | Walter Hamilton,Los Angeles Times

NEW YORK -- President Bush stepped into the swirling debate over executive pay yesterday, saying that corporate directors, not government officials, should be the ones to decide whether chief executives are earning their keep.

"Government should not decide the compensation for America's corporate executives, but the salaries and bonuses of CEOs should be based on their success at improving their companies and bringing value to their shareholders," Bush told a gathering of business leaders at historic Federal Hall in Lower Manhattan.

"America's corporate boardrooms must step up to their responsibilities," Bush said. "You need to pay attention to the executive compensation packages that you approve."

His immediate listeners, a dark-suited New York business audience, reacted to his remarks with silence. But the invited crowd offered applause when Bush talked about cutting taxes and improving education.

The Republican president's comments came a day after the Democratic-led Senate agreed to hold a vote on a measure that would limit the amount of executive pay eligible for tax-free deferral. The bill was introduced amid widening criticism of corporate compensation packages that guarantee huge paychecks, even for executives who don't succeed.

Last month, for example, Robert L. Nardelli was forced out as chief executive at Home Depot Inc., walking away with stock-based compensation and severance pay valued at $210 million. During his six-year tenure, Home Depot's stock list 7.9 percent.

Corporate-governance activists were pleased to hear Bush call on corporate directors to do their jobs, but said his comments were unlikely to stem the trend of rising pay. They pointed out that Bush devoted only a few sentences to the topic at the end of a broad economic speech.

"It's a little late for him to comment on this situation that has caused so much controversy over the past five years," said Paul Hodgson, senior research associate at the Corporate Library, a Maine-based firm that studies executive compensation and related issues. "It's very clear that he's not going to take any legislative action in this area."

Brian Foley, an executive-compensation expert in White Plains, N.Y., agreed with Bush that the government should not set pay levels. But he said the president could have spoken out more forcefully.

"He certainly could have been a little more pointed and used the bully pulpit to say we need more restraint in the corner office," Foley said.

Bush's mention of CEO pay set off a mini-fire storm in executive-compensation circles as consultants and lawyers murmured back and forth about the message the president was conveying.

There was so much e-mailing going on, "I was surprised we didn't have a brown-out," said Robert A. Profusek, a lawyer at Jones Day in New York.

Profusek believes that executive pay is not a problem and that corporate directors work hard to offer fair pay. Others with that belief seemed to think the president had turned on them.

"It was, `Can you believe this - even Bush has jumped on this bandwagon,'" Profusek said.

The president's comments came at the end of a "state of the economy" address across the street from the New York Stock Exchange at Federal Hall, where Washington was inaugurated.

Bush's unannounced stop on the floor of the New York Stock Exchange caused a stir. He and Ronald Reagan are the only presidents to have gone there during trading hours.

Walter Hamilton writes for the Los Angeles Times. The Associated Press contributed to this article.

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