Today's WSJ article about Bob Nardelli's pay including income tax reimbursement is flat-out weird. Here's my take. If I was a Home Depot shareholder, the board would need to convince me that paying Bob Nardelli $2 million plus all that other crap has the best return for the company (as opposed to hiring someone cheaper). Everyone else in the company makes financial decisions that way, and there is no reason CEOs should be exempt from performance standards. Is he worth that much? I don't know. I think the best of the best are problemably worth millions a year in total compensation. Some people are well connected enough and wield enough power in their industries that they are worth boatloads of money compared to bringing in a newbie.
But, there are sooo many CEOs with these high pay packages that, frankly, pretty much suck. Being a CEO of a large public company is no doubt a difficult and demanding task. It requires someone that is very strong in many areas. I don't believe, however, that there is the shortage of these people that the pay rates would imply. I bet there are lots of CEO quality executives that never make it to the top just because of luck, timing, and other intangible factors. Many of them would problemably do the job for a lot less just for the opportunity.
Boards are reluctant to change CEOs unless they are clearly poor performers. But I think they should change them if, like any other position, they want too much money. Paying $150 million to someone that increases your company's value by $75 million doesn't make economic sense. (And don't tell me that stock options don't count and don't matter because they do.)
I believe there are business superstars out there that aren't prima donnas. Boards, however, seem to think there aren't, and that they must implement ever more ridiculous pay packages for talent that seems mediocre.
Please start holding CEOs to the same performance standards as everyone else. I'm not against high pay in principle, I just think pay should be tied to performance. A $100 million a year is fine with me, but only if it is earned.