In boardrooms across the country, paymasters are sitting down to the annual autumn ritual of deciding how many goodies the top brass will enjoy in 2010 -- in the form of pay, options, stock and often-extravagant benefits.
The good news for shareholders: They're doling out the billions a little more slowly this year.
Pay experts privy to the negotiations say compensation committees are shying away from the huge raises that were par for the course during the go-go years of the credit bubble. They're also trimming the perks.
And most importantly for shareholders, they're trying harder to link executive rewards to long-term company results, as opposed to letting options and stock grants kick in merely because execs keep their seats warm.
One important sign: The Conference Board, an influential watchdog group, released executive-pay guidelines last week that reflected much of what advocates have wanted for years -- and a number of major companies endorsed them.
"I am very optimistic," says Hye-Won Choi, the head of corporate governance at TIAA-Cref, a privately held pension fund that has been using its clout as a huge shareholder to gun for more-rational executive pay for years.
Still, the question is how many companies will not just endorse guidelines but follow through.
The outcry is heard
You can chalk up the change to a vast public outcry against outrageous executive pay over the past few years, which has more recently had the politicians in Washington hopping on the bandwagon. Critics are driven partly by the widespread belief that pay packages helped cause the financial meltdown by encouraging CEOs to take excessive risks so that they could pocket billions in a hurry, never mind the consequences.More from MSN Money
"We have seen a number of directors step up and say, 'We have to reconsider our past practices, and it's time for a change,'" agrees Rich Ferlauto, who manages pay-reform efforts and other shareholder activism for the American Federation of State, County and Municipal Employees. "The message is getting through."
Of course, lasting change is no sure bet. Executives have come to expect rich pay -- astonishingly, even when they're demonstrably not good at their jobs. They also feel entitled to a steady parade of perks and payouts, even absurd ones such as the big payments upon death known as "golden coffins."
So the pay committees on corporate boards face some tough choices, stuck as they are between a public drumbeat for change and their buddies in the corner offices whose pay they set.
"It's not easy being on the compensation committee these days. It ranks up there with the cable guy," quipped Doug Friske, a compensation consultant with Towers Perrin, at an Equilar conference on executive comp in New York last week.
Video: Can companies police executive pay?
Some experts even predict CEO pay reform will get swept under the rug if the economy recovers enough so that the public is distracted from reform. "If the economy comes back, it will wash away the issues," predicts Ira Kay, a compensation consultant with Watson Wyatt.
3 signs of real change
Still, I'd cite the following signs that change on pay is afoot in the boardroom:- Shareholder activists in the trenches are noticing a difference. "Companies are paying much greater attention to how they incentivize executives," Choi says. As the head of corporate governance at TIAA-Cref, Choi is in on the conversation between companies and shareholder activists -- like her pension fund. She says boards this year are listening a lot more closely to activists and not just responding to the wishes of management. "That's the trend. We are seeing it in our conversations with the companies we own," Choi says. She predicts that one outcome will be pay packages that create better links between pay and long-term results -- a plus for shareholders.
- Pay consultants, who are in on the conversation as well, tell me the same thing. "Compensation committees are more conservative than a year ago," says Irving Becker of the Hay Group. "They are less willing to do things that in the past would have been considered aggressive."
- Companies are signaling they're in the mood to reform, probably because it's better to make changes on their own than let Washington do it for them. The Conference Board's proposed executive-pay guidelines include things such as better links between pay and performance, and cutbacks in overly generous golden parachutes, perks and death benefits.
It's encouraging that many companies have agreed to the guidelines. They include AT&T (T, news, msgs), Cisco Systems (CSCO, news, msgs), Hewlett-Packard (HPQ, news, msgs) and Tyco International (TYC, news, msgs), and you can expect more to come. "A number of very large companies will be signing on shortly," says Paul DeNicola, the director of The Conference Board's Governance Center.
Of course, agreeing to principles is not a binding obligation. But companies don't do this lightly because it will be a "potential source of embarrassment" if critics can later point out they're ignoring the guidelines, says Robert Denham, a partner with law firm Munger, Tolles & Olson. Denham was among the Conference Board advisers who wrote the guidelines.
Continued: The changes to watch for
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