Paying for excess the enduring battle over executive compensation: in the fallout from the financial crisis, a time of enormous government bailouts and burning controversy over huge corporate salaries and bonuses, the topic of executive compensation has never been more hotly debated.

• Author: Stevens, Michael L.
• Position: COMPENSATION

In 2001--when Jack Welch retired as CEO of General Electric Co.--he was lauded as successfully delivering a significant return to investors during his tenure and was praised for his management style and his innovation as a leader. At retirement, GE engaged Welch as a consultant on a retainer of $86,000 per year

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According to the company's proxy statement, in his retirement, Welch would have "continued lifetime access to company facilities and services comparable to those which are currently made available to him by the company."

When, in 2002, Welch's wife filed for divorce, more detail regarding these retirement benefits became publicly known. Among other things, GE was providing: The use of the corporate jet; the use of a $15-million apartment on Central Park West in New York City; expenses relating to the apartment, including laundry, newspapers, wine and food; access to floor-level seats to the New York Knicks and courtside seats at the U.S. Open tennis tournament; satellite TV at his four homes; and a $9-million per year pension.

When asked about this, Welch indicated that he had foregone some cash compensation in order to maintain the perks. He said, "In this particular deal, I sacrificed millions of dollars. Not that I am some generous sacrifice; I'd prefer to have what I had. But it was an employment contract. I fulfilled my obligations. GE did fantastically. [It] increased market cap $250 billion over the timeframe, became [the] number one market cap in the world, [the] most admired global company for five years in a row."

In short, times were good, and people were still mad at Welch. The U.S. Securities and Exchange Commission was particularly interested in the fact that many of these benefits were never quantified in the company's proxy statement. With all of the executive compensation disclosure requirements under the SEC regulations, it took a divorce proceeding to bring these perks to tight.

Some might characterize this as "excess without failure."

Which leads one to consider American International Group Inc.'s recent payment of $100 million in retention bonuses in the wake of a government bailout under the Troubled Asset Relief Program. Some critics are hailing that as "excess after failure."

There may be more outrage than fact flowing through the news channels lately, but the point remains--as a topic of discussion, executive compensation is hotter than ever.

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