Slow down the gravy train: some form of special leadership is called for as those at the top of the pyramid continue to pull away from the rest of the American people.

• Author: Keller, George M.
• Position: ENDNOTE

Ed. Note: It is not common to get a senior corporate leader to critique top executive compensation--especially to boldly admit that CEOs are overpaid. George M. Keller did so in DIRECTORS & BOARDS in an article he authored in 1994. By then he had retired as chairman and chief executive officer of Chevron Corp. His legacy included executing the largest corporate takeover at the time--the acquisition of Gulf Oil Co. in 1984, a deal that transformed Standard Oil Company of California, which he had joined in 1948, into Chevron Corp. Keller died in October 2008 at the age of 84. Following is an excerpt from his remarkably candid--and prescient--article, as pertinent to today's situation as when it first appeared 15 years ago. At the time of the article's publication, he was a director of Boeing Co., First Interstate Bancorp, McKesson Corp., Metropolitan Life Insurance Co., and Chronicle Publishing Co., and served as chairman of four compensation committees.

--James Kristie

AMERICAN CORPORATE CEOs, in general, are significantly overpaid. Their job responsibilities and risks just do not justify multimillion-dollar compensation. Let me hasten to acknowledge that I was a beneficiary of a good part of the inflation of the CEO's income before retiring at the end of 1988.

In the past 40 years we've seen the introduction of modest 10% or 20% management incentive plans in the 1950s expand in scale and participation through the '70s, and supplemented by longer-term schemes in the '80s--stock options, restricted stock, performance shares--all incremental to normal salary progress, often adding 200% or more to salary.

Today's typical corporate compensation profile looks like a pyramid with the Eiffel Tower poking out the top--the CEO and one or two other executive officers far above the madding crowd. At present compensation levels, most CEOs are working to generate funds for their grandchildren, their favorite philanthropies, and the IRS.

Of course, the board compensation committee is aware of the widening gap between the CEO and the rest of his organization. Practical economic considerations preclude our moving toward a more equitable relationship by simply doubling the lower-level salaries, so we pursue a sort of pseudo-equity by trying to restrain further expansion of the gap and by relating the CEO's compensation more closely to his success in generating value for the business as a whole.

We are faced with the need to be competitive--whatever that...