Randomly Noted

Let’s hear at least one cheer for the corrective power of market forces, the power of public opinion, government pressure or more likley a combination of the three. Maybe even much maligned boards of directors deserve a little credit.

The cause for this at least tentative cheer: the front page article in today’s Wall Street Journal that reports compensation for U.S. chief executives edged lower in 2009, marking the first time in some 20 years that CEO pay declined for two consecutive years.

In 2009, the Journal’s Joann Lublin reported today, the median compensation for CEOs at 200 major U.S. companies fell 0.9% to $6.95 million. In 2008, pay fell 3.4%. This despite the fact that many of these companies’ stock prices, at least, and admittedly starting low, did pretty well in 2009.

For years CEO and top executive compensation made great leaps and bounds, with apparently little board interest in reining it in or in many cases truly linking pay to performance.

Public and political unease grew. Studies showed the widening gap between pay at the top and pay in the middle of corporations. Nothing much happened. Often, it takes a crisis and, of course, we got a doozy, including a deep recession.

All the anger ratcheted up a number of notches. Non-financial corporate CEOs probably like to think the populist anger was directed at the bankers, who seemed to continue to do well even when the whole sector needed government support and there was wide evidence of out-of-control risk-taking.

But I suspect the resentment and anger is more generalized and includes CEOs at companies that had nothing to do with the financial crisis and whose pay, while certainly significant in absolute terms, was never in the headline-grabbing category.

Boards should stay in control of executive pay. But they should be diligent about it and now they have to prove they can do it. Measures such as long-term payouts and large percentages of pay in company stock likely will increasingly become the norm. It’s supposed to better tie CEO interests to the long-term interest of holders. Also ubiquitous will be ”clawbacks” with teeth, meaning the ability to rescind bonuses if in retrospect strong corporate financials are revealed to have been built on sand and restatements are needed.

So is this an example of the market working like it’s supposed to work? Is it a belated disposal of the tin ears boards long sported as big shareholders and the general public complained about pay not tied to performance?

We can spread the credit around. The ‘system,’ which is never just one thing, but a complicated intersection of private sector practices, public opinion and government talk and action, is now turned in a somewhat different direction on CEO pay.