Binary decision.

• Position: Chief executives's remuneration

IN 1999, as the long-running bull market continued to race forward, CEOs of the largest companies took home on average more than $10 million, and some took home much more. Chief executives justified these payments by pointing out that, alongside their own hefty payouts, their shareholders had become rich as well. Everybody was presumed to be happy.

In 2000, the bull market came to a screeching halt, but many CEOs did not share the pain with their shareholders because compensation committees had gone out of their way to help them. On average, the median pay package for CEOs of the largest companies was more than $6 million; the average, more than $20 million. Chief executives at S&P 500 companies received an average increase in cash compensation of 22% despite the significant decline in profit growth and the substantial decline in stock valuations.

The meltdown in the stock market did not severely affect the pocketbooks of many CEOs because they had effectively negotiated with their boards to extract larger cash payments and bigger option grants. On average, these executives received almost $2 million in stock grants and approximately $15 million in stock options. Option programs generally provide executives with stock options equal to a multiple of their salary, thus a rising market results in fewer stock option grants. However, during the late 1990s, executives had successfully argued that they should receive the same number of options despite the market run-up; but in 2000, these executives argued that they should receive more options to make up for the market falloff. Yet the 12% decline in the S&P does not fully explain the...