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Executive Compensation: Spend It Carefully

Harvey L. Pitt | February 28, 2006

When Lee Iacocca joined Chrysler in 1978, he immediately went to work on engineering the company’s fiscal turnaround. One of his first, and most visible, measures was announcing to shareholders that, to reduce costs, he had lowered his own salary to one dollar. When a shareholder questioned Iacocca about this drastic reduction, he responded, “Don’t worry. I’ll spend it carefully.”

That philosophy—“spend it carefully”—is exactly how public companies should, but often don’t, approach spending shareholder dollars to compensate senior management and directors. In that context, it’s interesting that General Motors Corp. recently took several plays out of Iacocca’s playbook, including announcing it had slashed executive pay and benefits. The fact that this measure is being viewed as largely symbolic says a lot about the state of executive compensation in the U.S. today: The saved dollars don’t necessarily affect the company’s bottom line as...

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