Want CNET to notify you of price drops and the latest stories?

Company boards must step up in bad times

2 min read
In response to the August 13 Perspectives column by Robert O'Connor, "":

Your letter to CEOs was all right as far as it went--but what you recommended is insufficient. What is more important is to address the board of directors at those corporations.

Paying a CEO extraordinary compensation is only acceptable if the progress of the corporation warrants it. At one time that was how it was done. But in many corporations, this is no longer the case: Compensation is pegged to the stock price, which is the company's perceived value, not necessarily its actual value.

Compensation for the top officers needs to be twofold: a modest salary and then bonuses, including stock options based upon the actual performance of the corporation. And instead being based on stock value, bonuses should be based both on actual earnings and on the corporation's percentage of market share. A CEO who increases earnings at the cost of market share should be penalized with a lower or nonexistent bonus. Conversely, increasing market share at the expense of profits should also be penalized. Only when profits are increased along with market share should there be any hefty bonuses. Financial stability for the corporation should be the primary concern of all CEOs. Minor bonuses should be paid out for simply making minor improvements in profitability.

At present corporate officials receive stock options whether the corporation is doing well or not. They are free to milk those options while looking for a new position and so further their personal wealth at the expense of the corporation that employs them. As long as they change corporations before the rape of their previous employer is discovered, they are held blameless. Boards of directors need to monitor their CEO's previous employers to determine whether they made a wise decision when they hired their present CEO.

Stock prices will continue to be depressed until such time as boards of directors and CEOs demonstrate fiscal responsibility to their stockholders. So far, those officials have demonstrated fiscal irresponsibility in far too many cases. Stockholders are now aware of this. It will require hard evidence to convince stockholders that their investment dollars will not be squandered on the unscrupulous.

At present fiscally responsible corporations are being penalized because of their fiscally irresponsible counterparts. Those penalties are warranted. When corporation officials see or hear of the rape of other corporations, and they do not sound a warning to the public and law enforcement, then they are culpable too.

Dennis Reiley
Flint, Mich.