One in Three Directors Deem CEO Pay Too High, Study Finds

CEO pay is excessive in most cases, about one in three directors of U.S. public companies say in a new survey by Heidrick & Struggles and the Center for Effective Organizations at the University of Southern California’s Marshall School of Business.

Among other key findings, the survey reveals concern that CEO pay is on the rise, and on the broad subject of the matter, about three out of 10 respondents (32.2 percent) feel that executive pay is too high in most cases – an increase over the 25 percent of board members who felt the same way from 1998 through 2001.

However, just more than half (51.8 percent) of all respondents said that CEO compensation is “about right except for a few high-profile cases.”

While many news reports this week revealed the study’s findings as showing that CEO pay is deemed too high by directors, others, such as by CNBC, have focused on the fact that the majority (51.8 percent) of directors who responded feel that compensation for top executives is where it should be.

“It is interesting that even though it is boards that determine the level of execuvite compensation, they still point to the important role consulting firms play." -- Ted Dysart, Heidrick & Struggles

As in the 2006 survey, board members see the actions of compensation consulting firms and the creation of new incentive compensation programs as the major reason for the continuing increase in CEO pay.

“It is interesting that even though it is boards that determine the level of execuvite compensation, they still point to the important role consulting firms play,” Ted Dysart, managing partner for Heidrick & Struggles’ Global Board of Directors Practice, said in a statement.

The survey also finds widespread unhappiness among directors regarding disclosure rules about CEO pay mandated by the Securities and Exchange Commission. Those rules were unveiled with great fanfare to give investors better, timelier information about pay and other compensation for top executives. Despite the intentions, most directors have said they doubt the rules are meeting investors’ needs.

“Executive compensation and how that information is disclosed have been controversial for some time,” Dr. Ed Lawler, director of the Center for Effective Organizations and a business professor at USC Marshall, said in a statement. “But what this survey unmistakably shows is that the issues are a growing concern even among the people most responsible for dealing with them: the board members of public companies.”