Is This Year to Burst CEO Pay Balloon?

Henry McKinnell, CEO of Pfizer USA, participates in a plenary session during the World Economic Forum WEF in Davos, Switzerland, in this Jan. 25, 2006 file photo. Will Robert Nardelli and Henry A. McKinnell do for executive pay what Enron Corp. did for corporate governance? Just as Enron Corp.'s meltdown led to tougher corporate governance regulations, the eye-popping packages those executives received when they exited CEO jobs at Home Depot and Pfizer have caused everyone from President Bush to professional compensation consultants to suggest runaway pay needs to be reined in.(AP Photo/Keystone,Laurent Gillieron, file) (Laurent Gillieron - AP)

NEW YORK -- Will Robert Nardelli and Henry A. McKinnell do for executive pay what Enron Corp. did for corporate governance? Just as Enron Corp.'s meltdown led to tougher corporate governance regulations, the eye-popping packages those executives received when they exited CEO jobs at Home Depot and Pfizer have caused everyone from President Bush to professional compensation consultants to suggest runaway pay needs to be reined in.

The topic is shaping up to be the No. 1 issue at this year's annual meetings of public companies.

Investor activists are buzzing about potential solutions, including shareholder advisory votes on executive pay packages and the end to provisions that give executives huge windfalls when companies are sold. And a handful of companies have shown a new willingness to talk to advocates about pay changes.

"There's a sort of silver lining to the whole Nardelli, Home Depot thing," said Chicago-based compensation consultant Donald Delves. "At least the shareholders finally spoke up."

Nardelli left Home Depot Inc. in January after months of shareholder complaints about his pay and the lagging performance of the company's stock versus home improvement competitor Lowe's Cos. And McKinnell's exit from Pfizer Inc. in July came 19 months earlier than expected in part due to growing shareholder anger about what had been disclosed about his lucrative retirement package.

But the true shock came when the details later emerged about just how large their severance deals were: Nardelli's was valued at about $210 million and McKinnell's came to almost $200 million, according to company filings with the Securities and Exchange Commission.

The packages were enough to warrant attention from Bush, who said in a speech on Wall Street last month that corporate board members must step up to their responsibilities. "You need to pay attention to the executive compensation packages that you approve," he said.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, is expected to introduce legislation on the issue. Frank said in a January speech at the National Press Club that high CEO pay is "not just a matter of envy. It has reached a point where it has some macroeconomic significance."

Frank pointed to research done by Harvard professor Lucian Bebchuk showing that compensation of the top five officers at the country's public companies between 1993 and 2002 totaled about $250 billion _ nearly 10 percent of aggregate profits. CEO pay grew by a median 11.29 percent in 2005, according to The Corporate Library, which tracks governance, compensation and performance.

Bebchuk, co-author of the book "Pay Without Performance: The Unfulfilled Promise of Executive Compensation," has become a frequently-cited source for information in proxy pay proposals. He's also started filing proposals himself on director pay at companies including Walt Disney Co. and Northrop Grumman Corp.

The American Federation of State, County and Municipal Employees has submitted "say on pay" proposals, asking for a nonbinding yes-or-no shareholder vote on pay packages at companies including Citigroup Inc., Wachovia Corp., Ingersoll-Rand Co., Merrill Lynch & Co. and Countrywide Financial Corp.

"I think it's a rare board that's going to ignore it's owners," said Timothy Smith, director of socially responsive investment at Walden Asset Management, which manages about $1.5 billion.