Corporate pay under new scrutiny: the economic malaise and the huge woes at financial firms have triggered hearings on top executive--mostly CEO--pay packages. Congressional Democrats see a hot political issue, and the SEC and IRS are also taking action on compensation topics.

• Author: Barlas, Stephen
• Position: COMPENSATION

Tom Lehner, the director of public policy for the Business Roundtable, relates a conversation he had recently with the CEO of a Fortune 500 company, who he declines to name. The CEO's company, like 350 others, received a letter from the U.S. Securities and Exchange Commission (SEC) during the second half of 2007 voicing unhappiness with the company's disclosure in its 2007 proxy about how the pay levels of top executives are determined.

This company, like all public companies filing proxies, was required for the first time in 2007 to comply with rules the SEC published in 2006 requiring companies to spell out in the Compensation Discussion and Analysis (CD & A) the "metrics"--a somewhat vague term, admittedly--used in determining the pay of the CEO, CFO and next three most highly compensated executives.

The SEC's Division of Corporation Finance had looked at this company's 2007 proxy, seen a significant disparity between the pay for two vice presidents and complained to the company that it had not spelled out why one compensation package was heavyweight and the other lightweight.

"One of them is doing a much better job," explained the CEO to Lehner, with a touch of exasperation, "but we can't put that in the proxy."

Exasperation is, in fact, the principal reaction these days among corporate executives whose pockets Washington players, and not just the SEC, are--if not exactly picking--pulling out and examining with all the fervor of a CSI technician looking for evidence of crimes.

Even before the disclosures about the severance packages given to former Merrill Lynch & Co. CEO Stan O'Neal and Countrywide Financial founder Angelo Mozilo (which led to a congressional committee hearing on February 28) and the bonuses paid to top executives at Bear, Stearns & Co. and Morgan Stanley--seen as big rewards for floundering performances--at least two congressmen had been on the warpath against lavish pay packages. Even the Internal Revenue Service (IRS) is getting in on the action.

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Congressional Democrats, certainly, sense a political opportunity in an anti-corporate executive comp campaign, especially given a looming recession and middle-class economic angst. When he released his economic plan on February 13, Sen. Barack Obama (D-Ill.) criticized executives who "are making more in a day than the average worker makes in a year," according to The Wall Street Journal.

Not that Sen. John McCain (R-Ariz.) evidently feels much...