Overpaid, underloved

February 02, 2007

Have the obscenely large compensation packages for corporate executives become so unpopular that President Bush felt compelled to attack the business community that has long been a key ally? Or, more likely, has Mr. Bush himself fallen so low in national esteem that he believes his rehabilitation depends on at least a bow to the middle-class concerns to which the new Democratic majority in Congress has dedicated itself?

Either way, Mr. Bush arrived belatedly this week at an issue that's been festering for most of his presidency. And it's likely too late for corporate boards to head off government interference by doing a better job of policing executive pay and bonuses themselves.

The Senate has reduced tax breaks on executive compensation in its version of legislation to raise the minimum wage. More measures are likely to follow.

Of course, the president is correct in scolding corporate directors who have failed to link executive pay to performance and thus allowed such outrages as the $210 million stock-based compensation and severance package awarded to ousted Home Depot chief Robert L. Nardelli. He presided over a 12 percent drop in the value of the company's shares.

Yet Mr. Bush's tax cuts have also contributed to widening the gap between rich and poor - making the rich richer while middle-income families have gotten comparatively little benefit. He argued Wednesday on Wall Street that income inequality is growing because the economy increasingly rewards education and skills. But that's only part of the picture.

The commodores of America's corporate fleet appear to be in for a rough time on Capitol Hill with Democrats in charge. Business leaders would be wise to follow the president's lead in at least acknowledging frustration that economic rewards aren't more broadly shared - and better yet, quickly take his advice to act on it.

They could, in fact, be far more effective than Congress at returning balance to a compensation system that rewards executives at a rate estimated in a Federal Reserve study two years ago to be 170 times greater than that of the average worker. Reform legislation of the past has sometimes inadvertently resulted in even higher pay packages.

But it may be too late for that. As Mr. Bush tries to crawl out of his slump in the polls and work with Democrats to fashion significant achievements during his final two years, his top priority almost surely won't be protecting a business community that fails to police itself.

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