What's next -- the company pays for the CEO's home utility bills too?

Boeing Company, the leading maker of commercial and military aircraft, released the Proxy Statement for its upcoming shareholders' meeting in April. The proxy includes disclosures regarding compensation to executive officers for the year ended December 31, 2007

Boeing paid its Chairman and Chief Executive, W. James McNerney, Jr., just about $19 million last year. Mr. McNerney will need the cargo capacity of a 747 airliner to carry home his pay. Here are the highlights:

* Salary of $1.8 million
* Cash bonus of $4.3 million
* Restricted stock awards valued at $4.8 million
* Stock options worth $3.7 million
* An increase in his pension valued at $3.5 million
* And, about $1 million in "other" compensation

No matter what you think about Boeing, its performance last year or McNerney's contribution to this performance, what is most striking is the $1 million in other compensation. The SEC now requires companies to disclose far more details about the perks provided to the CEO and other executives. The "other" category includes personal benefits, life insurance premiums, tax reimbursement and company contributions to retirement plans.

Most of McNerney's personal benefits are standard CEO issue. $556,000 for the use of Company aircraft, a car and driver, home security service, country club memberships, financial counseling advice, and this last item that caught my attention -- about $90,000 to install a back up generator at McNerney's home to restore power should the electricity be lost. The reason Boeing paid for the generator is to ensure "business continuity." In other words, so McNerny can work during a power outage.

Anyone who makes $19 million in any one year, should be able to afford a generator --even the top of the line model -- on their own. The McNerney family will get as much if not more benefit from it than Boeing -- unless of course, the generator will be used to only power McNerney's PC and fax machine and the electricity in his study.

The logic of "business continuity" could easily extend to many other items. Why not just go ahead and pay all of McNerney's utility bills? And to be really safe, Boeing should put some shelf stable food in the pantry in case McNerney gets hungry while doing all that work during the natural catastrophe he's expecting.

The Seven Deadly Sins

Three big names were dragged into the legal spotlight this week.

Soon to be ex-Governor of New York, Eliot Spitzer, fell from defender of the moral high ground to "Client Number 9."

Richard Scruggs -- the lawyer behind the 1998 $206 billion tobacco company settlement -- pleaded guilty to conspiring to bribe a judge.

Media mogul Barry Diller, who is wrestling in court with financial backer John Malone for full control of his media empire, took the stand.

So, what brings these three and many others like them to their judgement day? Governor Spitzer risked everything -- his political ambition and his family -- to spend a couple of hours with a hooker. Scruggs, who made over $200 million from the tobacco settlement, bribed a judge to avoid paying a fair share to an attorney who worked with him on the settlement. Despite mega wealth, a jet setting life and a secure place in the media hall of fame, Diller lacks what he most covets -full control over his own media empire.

It's easy to say that Spitzer suffered from lust. Or, Scruggs from greed. Or, Diller from envy (of Rubert Murdoch). But often the root cause appears more complex. To illustrate, take the Sptizer poll adjacent to this post -- How many of the deadly sins did Eliot Spitzer commit? One, three or all? As a reminder, here is the complete list:

1. Lust involves obsessive or excessive thoughts or desires of a sexual nature.
2. Gluttony is the over-indulgence of anything to the point of waste.
3. Greed is a sin of excess applied to the acquisition of wealth in particular.
4. Sloth represents the failure to utilize one's talents and gifts.
5. Wrath is an inordinate and uncontrolled feelings of hatred and anger.
6. Envy is an insatiable desire for something that someone else has.
7. Pride, is the self-loving desire to be more important or attractive than others.

And now, for the less rational side of executive compensation....

General Motors Chief, Richard Wagoner, is receiving a 33% raise for 2008. His base salary is jumping from $1.65 million to $2.2 million and he is also receiving another $1.68 million in equity compensation for his performance in 2007. To refresh your memory, GM lost $38.7 billion in 2007 -- the largest annual loss ever recorded by an American company. And in early February, in an effort to trim ongoing losses, the company offered buyouts to 74,000 employees - its entire US hourly workforce.

I wonder if the GM Board authorized the employee buyouts in the same meeting during which it approved the Compensation Committee recommendation to increase Wagoner's pay. Let's hope there was at the very least a coffee break between these two Board agenda items.

In other compensation news, the Boards of home builders KB and Toll Brothers are inventing new methods to richly reward their CEOs, even as their operating profits and stock price drop amidst an industry slump.

In direct contrast to General Electric -- which ties CEO pay to shareholder returns, Toll has decided to replace a similar performance plan with a bonus method based entirely on subjective criteria. This kind of bonus plan can be summarized as, "Our company performance sucks but we like you and don't want to penalize you...."

The same lack of pay-for-performance rigor is occurring at KB. Its Board awarded KB CEO, Jeffrey Mezger, a "discretionary" bonus of $6,000,000 for 2007. Under the Company's official bonus plan, which is tied to operating performance, he would have not received any bonus for last year. KB stock fell almost 60% in 2007.

I Can't Quit You Babe!

The price of oil hit a new high this week -- over $104 per barrel. What did our leaders have to say?

President Bush responded, "It should be obvious to all that the demand is outstripping supply... We've got to get off oil." What is obvious to many is not always obvious to all... like a 3rd grader "discovering" gravity.

And, Exxon Mobil Chief Executive, Rex Tillerson, offered, "It's pretty crazy, isn't it?" I believe Jed Clempett of the Beverly Hillbillies uttered a similar remark when he unexpectedly struck oil while hunting opossum on his farm in the Ozarks.

There is a lot of finger pointing going on. What's driving up the price? The weak dollar. OPEC production controls. Commodity speculators. Developing countries like China and India.

Like gravity, the underlying principle is very simple. As demand increases and supply dwindles, the price of oil will go up. And up. When it hits $150/barrel, I will offer my own pithy insight, "I told you so."

A Bargain for $14.2 Million!

The huge, global conglomerate – General Electric - reported this week that it paid its CEO, Jeffrey Immelt, $14.2 million in total compensation for the year just ended. In an extraordinary move, GE also cancelled $7.3 million in previously awarded stock incentives because the company failed to meet internal benchmarks for total shareholder returns. So, in effect, Mr. Immelt's take home pay was cut in half to $6.9 million.

In exchange for Immelt’s services, GE is getting a bargain. While Immelt does not have the public profile of his predecessor, Jack Welch, he generally receives high reviews from analysts, stockholders and business professors.

To put this in perspective, the median CEO compensation for S&P 500 companies was $8.5 million in 2006 (the most recent year results are available). How does GE compare to the typical S&P 500 company? It is bigger ($170 billion in revenues). It is more successful ($22.5 billion in net income and 20% return on equity). And, GE is far more complex – 327,000 employees across the globe operating in a wide spectrum of businesses. GE is a technology, media, and financial services company -- producing everything from jet engines and light bulbs to the NBC Nightly News.

Experts point to market forces (CEO pay is linked to the availability of suitable talent to assume the role) and pay for performance schemes (As the company performs, so goes the pay of the CEO). But by these measures, Immelt’s compensation should be significantly higher. It appears that the compensation committee of GE has another principle at work in setting Immelt’s pay – a “fair and reasonable” principle that often is missing in the boardroom as deliberations unfold about executive compensation.

How may CEO candidates could actually run GE as well as Immelt? Not many. The question is not how many think they can but how many actually can.

What is extraordinary is how little Immelt makes compared to the celebrity CEOs – who usually lead smaller, less complicated and diverse businesses. Steve Jobs of Apple made $647 million in 2006. Terry Semel, who failed to transform Yahoo, still made $174 million in his final year as the CEO of Yahoo. And, the CEO of AT&T made $49 million. It is hard to understand why Ed Whitacre of AT&T is worth seven times more than Immelt.

The critics have good reason to complain about CEO compensation, which often defies the logic of long-term success, company scale or operating complexity. The same critics should argue for a pay raise for Jeffrey Immelt.