Question: There seems to be more discussion on the topic of executives who are overpaid. Why is this? Should I be worried?

A BuyandHolder

Answer:

Dear BuyandHolder,

Yes, you're absolutely right. There is considerably more coverage of executive packages and backdated stock options in the news. Among the reasons: (1) the passage of the Sarbanes-Oxley Act which severely tightened SEC disclosure rules, (2) the negative fallout from the huge accounting mistakes (mistakes being a gentle word to describe these disasters) at Enron and other companies and (3) the fact that big shareholders are putting pressure on companies to reveal critical information.

Among the major shareholders who have filed or are filing suits and resolutions are the AFL-CIO labor group and the Council of Institutional Investors (which represents some 140 pension funds).

About the backdating of options & executive pay

Stock options are usually awarded to executives at the price of the company's shares on the day of the grant. However, a surprising number of companies have allowed "backdating," meaning the price is backdated to a lower one in order to increase the value of the options. This enables company officials to make a great deal more money when they cash in their options.

Shareholders lose confidence in companies when this type of misconduct takes place. The same is true when other parts of executive packages appear to be over the top. Perks that are coming into question include base salary, performance bonus, pension, personal (not business) use of the corporate jet for executives and their families, use of a car and driver by family members, cost of club memberships, travel for family members.

It is hoped that the new disclosure rules will embarrass boards to stop automatically giving huge salaries and rubber stamping benefits without reason. This is most likely to be effective if the company's stock drops in price. Shareholders tend not to squawk if the stock soars.

If you wish to track corporate compensation, option backdating and similar issues, check with these three sources:

• Glass Lewis & Co (www.glasslewis.com). This research firm has an interesting report on executive compensation called "Pay Dirt." You'll find it on the home page.
  
  
• Institutional Shareholder Service (www.issproxy.com). ISS provides proxy voting and corporate governance to institutional investors, but much of its data is useful to individuals. And, you can sign up for alerts regarding annual meetings with controversial topics on the agenda.
  
  
• The Corporate Library (www.thecorporatelibrary.com). A central repository for research and studies relating to corporations with a special focus on corporate governance.

Good luck!