How to stop corporate scandals: Raise CEO salaries.

Commentary about business and finance.
July 16 2002 5:21 PM

Give That CEO a Pay Raise!

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From the public's perspective, the shift away from cash salaries served to muddy the waters. While base salaries are easily comprehensible, incentive-based compensation packages are frequently opaque. It is difficult for laypeople to determine the value of options and restricted stock. As a result, the media frequently offer conflicting numbers when reporting on executive salaries.

Let's imagine, for a moment, that the $1 million limit was rescinded, and paying cash became the most tax-efficient means of compensating top executives instead of the least. Companies would pursue the path of least tax resistance and pay larger base salaries. And the clarity of a salary, its comprehensibility, its easy comparison with our own, would shine a bright light on executive compensation. It would provide a clear picture of precisely which shareholder resources are being doled out to the bosses. Many companies that currently have no compunction about dishing out options grants worth $50 million would not dare to write $50 million checks to top executives. If Enron had disclosed that it paid Jeffrey Skilling and Kenneth Lay $30 million or $40 million salaries, investors and regulators would likely have raised red flags far earlier. And if Enron cut back on its lavish stock options, Skilling and Lay might not have used accounting trickery to boost the company's share price.

Daniel Gross is a longtime Slate contributor. His most recent book is Better, Stronger, Faster . Follow him on Twitter.