COCA COLA Co. says it must maintain the "competitive posture" of its executive pay, so last year it gave top boss Douglas N. Daft $55 million.
The competitive posture of $55 million, of course, is ramrod, telephone-pole upright. The midshipmen on the Naval Academy parade ground are slouching, grubby hippies by comparison.
Daft's package included a $3.5 million bonus and $48 million in performance-based stock grants. The Daft family was truly blessed, even though Coke's shares went down by a fifth last year.
But in light of the latest and best executive-pay theories, Daft's deal might not be good enough. It might cause him embarrassment on the golf course. It might not, in the words of Coke's proxy statement, "attract and retain those individuals who can maximize the creation of share-owner value."
Coke's philosophy is to make sure its senior executives rank among the top fourth of their peers, boodle-wise. The board regularly surveys the field of executive blandishments and then pays Coke bosses better than at least three-fourths of their "comparators" at other companies.
Problem is, the comparators have been playing this game, too.
IBM's policy is to pay its bosses better than 75 percent of the other bosses, says its proxy statement. So is Capital One Financial's. So is Aflac's.
You can see where this goes. The $700 million made by Oracle's Larry Ellison last year might put Daft in a shameful, inferior pay quartile, and in the absence of other factors Coke's board might have felt obliged to back another truckload of cash into his driveway.
Indeed, recent revelations suggest that the state of executive-pay art has reached an exquisitely refined level, pressuring Coke and other underachievers.
At Adelphia Communications, for example, boss John Rigas' compensation included not only a salary, stock options, restricted stock grants and a big life-insurance policy, but hundreds of millions of dollars looted from the company treasury, say federal prosecutors.
At Tyco International, CEO L. Dennis Kozlowski and Chief Financial Officer Mark H. Swartz took home $430 million in illegal stock gains and $170 million stolen directly from the company, a New York grand jury charges.
Now that's competitive posture! Coca Cola, you're just not keeping up.
As Tyco, Adelphia and the Soviet Union can testify, open-ended arms races often end in financial distress, whether the hardware in question is plutonium warheads or gold-plated wastebaskets.
A commission appointed by the Conference Board underlined this point in a report last week, noting, "All company executives cannot be in the top quartile of pay scales."
Indeed. News accounts of that report got buried inside most business sections because the Conference Board is a private body with no regulatory authority. But the paper, by the group's Commission on Public Trust and Private Enterprise, is the most forthright admission yet by the corporate establishment that the needle on the executive pay problem has hit the red zone.
The Conference Board has been a redoubt of the ruling class since 1916, publishing economic and management research, letting CEOs network outside their industries and tracking key economic indicators. It has also sometimes been a corporate force for compromise and moderation, moving to improve relations between business and labor in the early 1900s, for example, and endorsing Social Security in the 1930s.
Former Federal Reserve Chairman Paul A. Volcker, Intel Chairman Andrew Grove and former U.S. Commerce Secretary Pete Peterson were on the panel that issued last week's report. A fairly damning document, it joins Alan Greenspan's reference to CEOs' "infectious greed" and New York Fed President Lawrence McDonough's description of excessive executive pay as "terribly bad social policy and perhaps even bad morals" in the growing file of white-collar jeremiads on the subject.
Executive-compensation consultants, the panderers and procurers in the CEO-pay bonanza, get a well-deserved slap. These are the corporate pay "experts" who, for large fees, certify bosses' packages as reasonable and competitive. Often the consultants work - formally or de facto - for management, not the board.
In addition to advising companies to deduct the value of stock options from earnings, the Conference Board panel urged each board to "hire its own consultants and avoid benchmarking that keeps continually raising the compensation levels for executives."
Chiming in, in an interview with National Public Radio, uber-investor Warren Buffett said: "The linking between the consultants and the management has produced a ratcheting upward of compensation that frankly is obscene in many cases. And you won't get that back on a proper basis by tinkering around the edges."
Buffett is the biggest shareholder and sits on the board of Coca Cola. Maybe he was thinking of Mr. Daft.