Washington takes aim at CEO pay

Among those who study corporate governance, some don't see the system in crisis. Some say boards have grown much more vigilant since the collapse of Enron Corp. and the resulting reforms imposed by the Sarbanes-Oxley law.

At the same time, concern has deepened in the past few years.

In one survey of 55 large institutional investors, managing $800 billion in assets, 90 percent said the current system overpays executives, and a similar number said the pay practices are hurting corporate America's image, according to the human resource firm Watson Wyatt Worldwide.

For their part, some directors may feel unable to change the pay system too much without more nudging from shareholders. In a recent survey of 1,300 board members by PricewaterhouseCoopers and the Corporate Board Member magazine, 50 percent of directors said board leadership flows from management – from a CEO who is also board chairman. That's despite the fact that it's the board's job to hire, set pay, and if needed fire the CEO.

Board members acknowledged they are having trouble curbing executive pay, but are counting on shareholders to lead the charge to pare it back, the survey found, according to an Associated Press report this week.

The latest poster child for corporate excess has been Robert Nardelli, who recently departed as chief executive officer of Home Depot with a $210 million "goodbye." Only a portion of that huge sum was actual severance pay, but he took large amounts in stock options and deferred pension compensation.

Such deferred pay is the target of a provision in a minimum-wage increase now being considered in the Senate. Many senators want the boost for low-wage workers to include tax breaks for businesses, who will bear higher labor costs. To pay for those tax cuts in the federal budget, the bill would impose a new tax on deferred compensation above $1 million.

It's unclear if the tax cuts, and that provision, will remain when the House and Senate bills are reconciled.

And beyond that, even at a time of rising concern about income inequality, it's not clear whether further legislation on CEO pay will pass. Given the clout of corporations and the tight balance of power between Republicans and Democrats in the US Senate, legislation such as Representative Frank's appears to have a tough hill to climb.

But some observers say efforts to limit the deductibility of CEO pay could gain ground. "If [voters] knew that we are actually providing tax subsidies to people who are making many millions of dollars a year, they would certainly question it," says Ross Eisenbrey of the liberal Economic Policy Institute in Washington. "It would be politically popular if it were explained to the public."

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