Sun Q&A on executive compensation

Mark DiGanci, Aberdeen: Which CEO (here or elsewhere) is considered to be the poster child of compensatory excess?

Kohn: Lots of people look at "excess" in different ways. It's really not just amatter of the number of zeroes in an amount. As we pointed out in ourpackage, it's plausible to defend even a very large package if the CEO hasproduced for shareholders. The executives who have been held out as "posterchildren" have usually been those with both very large packages andquestionable performance. One of those, of course, has been Michael Eisnerof Walt Disney. Dennis Kozlowski of Tyco actually produced good results,but questions over how he got his money became the basis of his twocriminal trials, and the micro examples of his personal excesses made forgreat copy. Shareholders have used their increasing power in recent yearsas a check and balance of compensation excess. Eisner is no longer CEO;Kozlowski is on trial; and the CEO of Delta Air Lines stepped down in largepart over criticism of his pay package. So it's getting harder for CEOs tobreak the bank.

Don Cartwright, Hunt Valley: In the nonprofit sector (which seems from the list to be mostly made up of highly competitive healthcare companies), isn't the CEOessentially a glorified fund-raiser? That would seem to make them worth themoney in order to fund building projects, technology upgrades and attracttop docs.

Kohn: That's certainly the argument many of these nonprofit medicalorganizations would make. There's no doubt that a modern hospital orhealthcare system is a very complex enterprise and that -- as in thefor-profit world -- there are only so many people capable of overseeingsomething of that scope. Supply and demand almost commands that the pricegoes up for someone possessing those skills. Of course, there are those whoargue that the board of directors, rather than the CEO, is the fund-raisingarm of a nonprofit organization. If you follow that argument, then the CEOis not really bringing in the money. That doesn't make the job any lessdifficult, but it does undercut the argument of the CEO deserving a pieceof the pie.

John Stevens, Towson: The story mentions that a third of the CEOs in the report got pay raises over 40%. Has there ever been any effort to regulate chiefexecutive pay raises to bring the percentages more in line with those ofthe average worker?

Kohn:I'm not sure anyone is any more interested in regulating CEO pay than inregulating the pay of either of us. Rather than the pay itself, theregulatory requirements have gone toward disclosure. Companies have todisclose not just the amounts their CEOs are being paid, but in what formsand, more recently, why. The why is a matter of better corporate governanceto some extent, but more a matter of companies needing to show that payover $1 million a year is tied to performance. Companies need to do this inorder to justify deducting those amounts as business expenses.

Randy Foster, Baltimore: What's the most creative -- or curious -- executive perk you found in your reporting?

Kohn: That's a great question, Randy. There's certainly a lot of creativity outthere.

I can't say we combed through every single proxy looking for that, but ourfolks do point out a couple of highlights. The CEO of Foundation Coal wasreimbursed for his legal fees in negotiating his own employment contract.And Broadwing Corp. paid more than $330,000 in moving expenses for itschief financial officer.

Karen Trendler: Out of curiosity, are there any women on your executivecompensation lists?

Kohn: Yes, there are two, both CEOs of suburban D.C. biotech companies: Martine Rothblatt of United Therapeutics and Kathy Ordonez of Celera Genomics.Rothblatt in particular is a fascinating study in overcoming genderbarriers/politics: She is a transsexual (about which she has been quitepublic.) As a man, Rothblatt was a very well-known telecommunicationslawyer and entrepreneur who helped start, among other companies, Sirius Satellite Radio, before undergoing a sex-change procedure in the early1990s and turning her professional energies to finding a cure for herdaughter's rare illness. Ordonez several years ago was given the hugechallenge of succeeding genomics research icon Craig Venter and turning hisdiscoveries into marketable products.

Anonymous: What about the Maryland Hospital Association and MedChi?

Kohn: Trade groups and similar types of associations don't fall under the IRScategory 501c3, which is where we focused our research. The vast majorityof nonprofits in Maryland do fall under that category, and information forthem is much more widely, consistently and currently available for thosetypes of organizations than others.

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