How Much is Enough?

When the scandals at companies such as Enron and WorldCom were first uncovered, corporate governance advocates, investors and some politicians pointed to runaway executive compensation as a key underlying problem.

Yet more than three years later, experts say little has improved. These days, heads of public companies can even argue they are underpaid when compared to high-flying managers at loosely regulated hedge funds, who often earn much, much more.

"There doesn't seem to be any indication that compensation is being really seriously reined in," said Paul Hodgson, a pay expert at the Corporate Library research group. "It's a monolith that has a great deal of momentum, and it's going to be very difficult to slow it down and particularly to turn it around."

Experts say boards of directors reward CEOs generously in boom times -- as well as in bad -- and need to show restraint. They point to payouts like the $113 million severance package awarded to former Morgan Stanley CEO Philip Purcell. That breaks down to about $10,300 a day for the next 30 years.

Minnesota Congressman Martin Sabo -- just as he has eight times since 1991 -- introduced a bill this week to try to curb exorbitant executive pay. Companies are allowed tax deductions for "reasonable" employee compensation, and Sabo's bill would define reasonable executive pay as equal to 25 times what a company's lowest paid employee earns.

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We don't like Sabo's solution, but we don't have any answers. The problem is, corporations don't have souls. The corporations are answerable to shareholders, who demand only profits for their investments. Virtues like moderation are irrelevant to the corporation, and the market arguably demands these types of pay structures to acquire executives who maximize profits. Absent fraud or malfeasance by the directors, how do we determine what's fair compensation? The pricing mechanism, which is the heart of the market, can't tolerate government interference.