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How Much Is Too Much? The Debate Over Executive Pay

Critics say company leaders are getting big raises even when they do not add value for their shareholders. Transcript of radio broadcast:

This is the VOA Special English Economics Report.

For Robert Nardelli, two thousand seven might seem like a bad year. After all, he resigned in January as chief of the world's largest operator of home-improvement stores.

Sales and profits grew during his six years at Home Depot. But the stock price of the company, based in Atlanta, fell eight percent. Many shareholders thought Bob Nardelli was paid too much and did not respect his investors enough.

So he was forced out. But he had something to look forward to that would ease his fall. Company directors agreed to give him two hundred ten million dollars worth of payments and benefits.

An agreement like this is known as a golden parachute. These are traditional when top executives lose their jobs because of a change of ownership or control of a company. This was not the case at Home Depot, and the money only added to shareholder anger.

Golden parachutes are just one issue in a larger debate in America. Executive pay is growing out of control, critics say, at a time when many Americans are feeling greater economic pressures. Last year, the average pay for a chief executive officer on the Standard & Poor's Five Hundred list of companies increased by over nine percent.

Critics say there is no relationship between pay and performance. They say company leaders get raises even if they fail to create value for shareholders.

Lawmakers are taking note. On April twentieth, the House of Representatives passed a bill to give shareholders in publicly traded companies the right to vote on executive pay.

The proposal by majority Democrats now goes to the Senate. But its future is unclear. The Bush administration opposes the bill. It says Congress should not set the approval process for executive pay.

The bill would require yearly votes but these would be non-binding. In other words, companies would not have to follow shareholder wishes. Still, supporters argue that a "say on pay" vote would send a clear signal about what the owners of the company, the investors, think.

The Securities and Exchange Commission requires public companies to include executive pay information in a document called a proxy statement. A proxy statement is supposed to help shareholders make informed votes on company proposals. But critics note that the way executive income is reported is often too difficult to understand.

And that's the VOA Special English Economics Report, written by Mario Ritter. I'm Steve Ember.