Delinquency Of the CEOs
By Robert J. Samuelson
Thursday, July 13, 2006; Page A23

CEO pay has accelerated so rapidly mainly because it lacks normal disciplines. If you and I set our pay, we'd do well, too. That's essentially the CEOs' prerogative. Some modest market pressures exist. In the 1990s about a quarter of CEOs of big firms were hired from the outside, up from 15 percent in the 1970s. But CEO pay is mostly set by sympathetic directors, often other CEOs. They want their guy to stay up with the pack.

"[N]obody has any idea what the right level should be," Pfizer's McKinnell told Fortune. True. There is no ideal way to set CEO pay. Any system can have bad, unintended consequences. That's why the current CEO pay explosion is primarily a moral failure. Would Exxon's Raymond have worked just as effectively for $100 million instead of $400 million? How about $25 million? If so, he was overpaid. By that standard, so are many CEOs.

But they have contrived a moral code that exempts them from self-control -- a moral code that justifies grabbing as much as they can. They unduly enrich themselves at shareholders' expense and set a bad leadership example. Because almost everyone else sees their code as self-serving and selfish, CEOs have undermined their moral standing and their ability to be taken seriously on other issues. They are slowly becoming a threat to the very system they claim to represent.