What if C.E.O. Pay Is Fair?

New York Times
Joe Nocera
Read the article here.

“I really don’t want to answer that question,” said Ira T. Kay, flashing me some combination of half-grin and half-grimace. “I have clients.”

Does he ever. Mr. Kay, 57, heads the executive compensation practice at Watson Wyatt Worldwide, which is one of the country’s leading compensation consulting firms. He is a funny, gregarious man, quick with a clever retort, and utterly without guilt about what he does for a living — not only enabling big-time chief executives to make oodles of money, but defending most of the practices that allow corporate chieftains to reap their millions.

For years, Mr. Kay has overseen an annual Wyatt Watson executive compensation survey, which the firm describes as an effort to provide “perspective on the executive pay model in general, pay for performance, stock ownership and share usage.” The Ira Kay perspective, not surprisingly, is that while there may be a few problems here and there (about which more later), the model is a darn good one.

A few months ago, Mr. Kay wrote a book entitled “Myths and Realities of Executive Pay” (Cambridge University Press), with Steven Van Putten, a Watson Wyatt colleague, that goes even further. “It is not a coincidence that the Dow Jones industrial average, which stood at 5,000 in 1996, is now well above 13,000,” the authors write. “While U.S. executive pay practices do not entirely explain this rise, there is little doubt that it would not have occurred without them.” I’ve heard Mr. Kay make this point before — and even debated him on it. He really does seem to believe that all of the great economic benefits we’ve enjoyed in this country during the past two decades or so can be traced back, in no small part, to the way we pay our chief executives. I, on the other hand, believe he’s got the cause and effect exactly backward: that it was the rising market that made the lucky fellas running America’s corporations look like geniuses — and made them richer than they’d ever imagined, thanks to the shift to stock options as the primary way to reward executives.

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