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What to do about the national crisis over CEO pay?

May 1, 2003

For more information, contact: Benjamin Haimowitz,

What to do about the national crisis over CEO pay?
Panel sees expensing options, strengthening boards as keys

But crisis also reflects changes in CEOs -- once Steady Eddies now superstars

With exorbitant pay for CEOs fueling a national crisis of confidence over the way the nation's corporations are run, a panel of leading scholars bases its hope for the system's future largely on three changes: 1) mandatory expensing of stock options; 2) much higher pay for boards of directors; and 3) governance ratings for corporations analogous to the financial ratings they now get from Standard and Poors and other agencies.

But helpful though such reforms will be, the system will still need to come to grips with changes over the past several decades in the top rank of corporate America. Alluding to the recent spate of company scandals, panelist Donald Hambrick of Penn State University observes that today's leaders are a far cry from the "Steady Eddies" who were their predecessors of a few decades ago. "Contemporary CEOs have been trained to be economic men and women. They are surrounded by the language of wealth maximization, they're reminded continually that this is their job, and they in turn adopt this as their own mantle, expecting their cut."

Adds Prof. Margarethe Wiersema of the University of California, Irvine: "The superstar status that today's CEOs increasingly enjoy...has led to a different kind of CEO, who may be inclined to different types of behavior than we've encountered before."

The panel discussion, held this month by teleconference, is sponsored by the Academy of Management as the first of an anticipated series of issues forums dealing with major problems in American business. It is being released on the Academy's web site this week. The Academy, founded in 1936, is the largest organization in the world devoted to research and teaching in organizational management.

The panel joins eminent scholars in corporate governance with two economists prominently associated with the rise during the 1990s of stock-based compensation and stock options -- Profs. Kevin J. Murphy of the University of Southern California and Brian J. Hall of Harvard Business School.

The panel is as follows:
Sydney Finkelstein, Tuck School of Business Administration, Dartmouth College, author of the just-published Why Executives Fail (Penguin Putnam)

Luis Gomez-Mejia, W.P. Carey College of Business, Arizona State University, co-author Managing Human Resources (Prentice-Hall)

Brian J. Hall, Harvard Business School, author "What You Need to Know about Stock Options," Harvard Business Review, March-April 2000

Donald C. Hambrick, Smeal College of Business Administration, Pennsylvania State University, co-author (with Sydney Finkelstein) Strategic Leadership: Top Executives and Their Effects on Organizations (South-Western College Publishing)

Kevin J. Murphy, Marshall School of Business, University of Southern California, co-editor, The Economics of Executive Compensation (Edward Elgar Publishing, Ltd.)

Margarethe Wiersema, Graduate School of Management, University of California, Irvine, author "Holes at the Top: Why CEO Firings Backfire," Harvard Business Review, December 2002.

Media Coverage:
Financial Times. CEO: (n) greedy liar with personality disorder. (Wednesday, July 02, 2003).

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