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Politics : Politics for Pros- moderated
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From: LindyBill5/27/2006 11:03:44 PM
   of 793903
 
Backdating options started with this: From WSJ.com

Which brings us to Congress, the villain of this tale that the rest of the press corps wants to ignore. Executive greed is an easier story to sell, we suppose. But the same Members of Congress who most deplore big CEO paydays are the same ones who created the incentive for companies to overuse options as compensation.

In 1993, amid another wave of envy over CEO pay, Congress capped the tax deductibility of salaries at $1 million. To no one's surprise except apparently the Members who passed this law, most CEO salaries have since had a way of staying just below $1 million year after year. But because companies still need to compete for and retain top talent, they have found other forms of compensation--notably stock options.

And one of the problems with options is that they give executives every incentive to capitalize all company profits back into the stock price--thus contributing to their own pay--rather than paying out dividends to shareholders. As SEC Chairman Chris Cox has noted, the 1993 law deserves "pride of place in the museum of unintended consequences."

In a better world--one in which Congress kept its nose out of wage decisions--corporate directors could pay the salaries they wanted and wouldn't rely so much on options to motivate executives. This, in turn, would reduce the incentive for companies to stoop to such dubious pay practices as option backdating. But as long-time observers of Washington, we can say with certainty that backdating will cease as a corporate practice long before Congress admits its mistake.

opinionjournal.com
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