Enron Corp. and WorldCom Inc. aside, there are few corporate governance issues that resonate as powerfully with the investing public and regulators as executive compensation. So it's not surprising that the Securities and Exchange Commission recently adopted new rules to compel companies–beginning Dec. 15–to provide a compensation discussion and analysis section in annual proxies, designed to make it clear to shareholders just how much they are paying executives.

Although analysts are already predicting that the complexity of options, deferred compensation, pensions and other perks will still make it difficult to come up with an accurate bottom line, a contrarian report from the National Bureau of Economic Analysis argues that maybe no one should even bother trying. According to a working paper by academics Xavier Gabaix and Augustin Landier, the rise in compensation has little to do with lax board governance and everything to do with the growth in U.S. market capitalization. The authors of "Why Are CEOs Paid So Much?" contend that the sixfold increase in CEO pay between 1980 and 2003 is entirely attributable to the sixfold rise in the cumulative value of the nation's public companies. "Given all the passion surrounding the issue of CEO pay, we wanted to analyze it in as cool and dispassionate a way as possible–and not to assume that the reason why CEOs are overpaid is because they stock the board" with cronies, says Gabaix, an associate professor in M.I.T.'s department of economics. "We found, first, that CEO pay moves one-to-one with market capitalization, and second, that the limited pool of good CEOs drives the price higher."

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