Executive compensation: two sides of a contentious coin.

• Author: Davila, Serena
• Position: Washington insights

The issue of executive compensation has gained much attention from Capitol Hill and the President. It was once a topic that was not publicly discussed. Today, of course, the Internet has allowed anyone to easily locate the salaries of top executives from public companies. Anyone with a computer and some research skills can pretty easily find salary and stock information on top executives and, with a bit more research, even their travel expenses and cell phone bills.

In this new information era, where such data is very public, there are two competing arguments for and against high executive compensation. The first argument is that the government should pass legislation to limit what high-ranking executives make, and that those making significantly more than the rest of society should have their pay capped. A second, contrary argument is that executive compensation should not be capped because we live in a free market that should reward those who succeed.

COT Letter Takes a Stand

Put another way, people who work hard and succeed in the business world, rising to the level of a CEO, should reap the benefits and high salaries the come with it. A January 24 letter, sent by FEI's Committee on Taxation (COT) to several members of Congress, noted that deferred compensation, if properly structured, aligns management interests with those of shareholders because the executives receive payment only to the extent the employer remains solvent and financially healthy after they retire.

According to an article in The Washington Post on February 1, the gap between the rich and poor has been growing significantly over the last 30 years. Not until recently has President Bush acknowledged this issue, bringing it even more into the spotlight. Most economists will agree that income inequality is typically the result of varying degrees of education.

In his "state of the economy" speech, delivered on Wall Street on January 31, President Bush noted that "the fact is that income inequality is real. It has been rising for more than 25 years ... The reason is clear: We have an economy that increasingly rewards education and skills because of that education."

With a Democratic Congress, there will likely be legislation passed that could limit executive compensation and require shareholders to approve executive pay, placing more checks and balances on CEOs. Congress...