Nardelli: Poster boy for executive pay reform?

About 10 companies, including Pfizer, Intel Corp., Bristol-Myers Squibb Co., Schering-Plough Corp., American International Group Inc., JPMorgan Chase & Co. and Colgate-Palmolive have formed a working group with AFSCME and Walden to discuss shareholder approval of pay packages. They met Friday at the offices of TIAA-CREF, which manages $406 billion.

Such a system, used in the United Kingdom, would not give shareholders a vote on pay. But it would allow them to bring nonbinding confidence or no-confidence vote on reported executive pay, letting shareholders either ratify or say no to the pay package an executive has already received.

“Only a handful” of pay packages in the UK have not been approved by shareholders, said Jeffrey N. Gordon, a law professor at Columbia University at a Thursday presentation to the New York Society of Security Analysts. One package that wasn’t approved was from GlaxoSmithKline PLC, where shareholders were particularly upset about a “golden parachute” package for the CEO.

“In response to shareholder pressure, it was cut by two-thirds,” Gordon said.

Other solutions are coming from companies themselves. While Ben & Jerry’s is the best known example of a company where executive pay is a multiple of employee pay, DuPont Co. has used the same standard for the last decade, with the target cash compensation for the CEO set at about twice that of an executive vice president. The company also pays modest bonuses, considering its size.

The practice started under CEO Edgar S. Woolard, who retired in 1995. In a video message posted online, he pleaded with executives to ratchet down pay as a way to restore public trust in corporate leaders. He argued against what he calls the “myths” used to justify high CEO pay, including the idea that CEO pay is driven by competition.

“To that, I say, ’Bull,”’ he said. “CEO pay is driven by the outside consultant surveys and the fact that your CEO in your company has to be at least in the top half and maybe in the top quartile.”

DuPont did not make Woolard available for interviews.

More than anything, this is an issue for corporate boards, said John C. Wilcox, senior vice president and head of corporate governance at TIAA-CREF. “We don’t want to micromanage the internal decisions of the company’s management.”

One reason Home Depot’s Nardelli got the rich pay package he did was because his hiring was a “hail Mary pass” by a company that was in “dire straits,” said Ken Bertsch, executive director and head of corporate governance at Morgan Stanley Investment Management, at an event Monday hosted by Institutional Shareholder Services.

By contrast, companies that grow their own talent avoid the CEO star search — and the major league pay that comes with it. Michael L. Eskew, CEO of United Parcel Service Inc., has been with the company since he graduated from Purdue University’s industrial engineering program in 1972. He earned about $2.5 million in 2005, outside options — and the 33,993 shares underlying his options aren’t staggering.

As boards set goals for pay, they need to look harder at performance data.

“This is pretty simple stuff,” said Delves. “If you want pay at the 75th percentile, you better have performance in the 75th percentile. It’s not hard to figure out.”

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