Opinion: Instead of complaining about multi-million dollar CEO pay, focus on the real problem: the board of directors

Gus Carlson is a US-based columnist for The Globe and Mail.

In addition to crowded gyms, empty bars, and fully booked flights to warm destinations, the new year brings with it yearly complaints about CEO pay.

This is a familiar chorus in the media, the same story repeated year after year. No one person is really worth millions of dollars. The pay gap between executives and employees is too wide and widening. A perceived lack of fairness is that the average CEO earns more for breakfast than the average worker earns in her one year. summed up in a sensationally naive metric:

But the problem isn’t that CEOs are paid too much. The huge responsibilities they undertake, especially those who run public companies, go well beyond their job description. When these “key moments” require smart decisions and quick action, the CEO acts alone like a baseball reliever his pitcher. There may not be a “me” on the team, but when a crisis strikes, stakeholders see no team, just the CEO.

The real problem is with boards that appoint CEOs and don’t make sure their choices are worthy of what they get. The board holds performance accountable to the chief executive officer, uses a multi-faceted compensation structure to promote good performance, punishes failure, and fires leaders when they are not performing. Should do a much better job.

Too often, the board rides the CEO’s pony too long, accepting failures and not fixing them. Of course, part of the board of directors involves egos. No one wants to see their choices fail. And it’s human nature to love second chances, especially when you’re like a highly-paid director with a lot of business experience.

Continuity is also a concern. The average CEO term is already fairly short, around three years. Firing the chief executive even earlier can be distracting and demoralizing to the organization. Corner offices with revolving doors send a negative message to internal and external stakeholders.

How much are Canada’s top CEOs paid? Here’s the full breakdown

Boards often fail to use compensation packages effectively. Most CEOs have complex pay structures consisting of salaries, cash bonuses, stock bonuses, and other perks. The board can dial in any or any combination of these components to reward good performance or hit subpar results. You can get your money back, but I’ll be back slowly when things get worse.

The board also needs to do a better job of scrutinizing chief executive candidates. CEOs tend to come from inside the company and logic is someone who knows the company can stay on track and not have a steep learning curve. Not necessarily. A fresh perspective in the hot seat is an asset, especially for companies grappling with transitions in a rapidly changing market. However, boards often choose “good enough” in-house candidates to avoid the launches required by newbies.

Look at The Walt Disney Company. Recently abdicated CEO Bob Chapek was raised locally and raised by the board. In fact, he was handpicked by his predecessor Bob Iger as someone who could make Disney a leader in the highly competitive streaming business.

Shortly into his two-year term, Mr. Chapek stumbled. He reorganized his company, surrounded himself with bankers, alienated creative people, and had a strategy that didn’t go off the rails. He also became involved in very public outside political battles unrelated to Disney.

Most importantly, he messed around with streaming balls. The service lost money and lost more money. And the strategy to get it off the ground was riddled with holes. Still, the board, including Mr. Iger, approved his actions.

Mr. Chapek’s shortcomings became apparent long before he was fired. Even Mr. Eiger became critical of his protégé. Still, it took time for the chief financial officer to file a whistleblower complaint and urge directors to take action.

Embarrassment aside, the business impact is real. Disney has already lagged behind its competitors in the streaming business, and it will take Iger even longer to turn around as he returns as CEO.

The Disney experience is a cautionary tale for those who are quick to pounce on CEO compensation as evil, and a cautionary tale for boards that manage executives. The shorter Mr. Chapek’s tenure was, the shorter it should have been. And Disney’s board of directors knew it. Mr. Chapek’s salary was not the issue.