One reason no one much likes corporate America these days is executive compensation. The subject is rarely out of the headlines and serves as compost for many articles and books written in pornographic detail.

CEO compensation discussions have struck a particularly pessimistic note since the 2008 financial crisis, when the high cicerones of finance rolled the dice, pocketed their winnings and relied on taxpayers to make the markets right again.

In the 1970s and ’80s, public corporations began adding stock options to already generous CEO salaries and bonuses, with the hope of giving them an incentive to boost corporate fortunes as measured by increases in the company ‘s stock price. Instead of promoting shareholder interests, the approach has created an incentive for executives to manage corporate resources to maximize management’s wealth.

Overall executive compensation jumped from a median of $1 million in 1980 to $10.8 million in 2013 for CEOs of companies listed on the Standard & Poor’s exchange, with stock-based compensation accounting for two-thirds of median CEO compensation. The ratio of executive pay to that of average workers has grown from 29.9-to-1 in 1978 to 295.9-to-1 in 2013.

American firms spent nearly $1 trillion last year on stock buybacks and dividends that elevate a firm’s stock price to new highs and help fuel a bull market in which captains of industry flourish regardless of a company’s underlying health.

For example, several weeks ago, General Electric announced that it will return $90 billion to shareholders through a series of dividends and share buybacks. Apple pursued a $90 billion stock buyback last year, Exxon Mobil spent $13 billion on stock repurchases, and IBM has spent $108 billion on buybacks since 2000.

But there are clouds. Does this strategy make productive use of the firm’s resources and create long­ term value? Should increased CEO compensation be tied to improvements in firm performance that result from factors such as low interest rates or an expanding economy that have nothing to do with an executive’s performance?  What is the overall impact of this incentive for senior management to “manage earnings” or to artificially  inflate profits?

Here’s how it works:

“Why do you suppose professional athletes are forbidden from betting on the games they play in?” “That’s easy. So they won’t be tempted to make their bets pay off by shaving points and so on.” “And yet we allow senior executives to bet on their games.”

“By buying stock in the companies they run?”

“Sure. We even encourage that kind of betting by showering them with stock options.”

“Even as they can manipulate the final score by cooking the books to drive up the company’s stock price.”

“All in compliance with Generally Accepted Accounting Procedures. So shouldn’t we prohibit managers from buying and selling stock in their companies, just like we prohibit professional athletes from betting on the games they play in?”

“Makes sense when you put it that way. How would you pay them?”

“Give them big cash salaries, plus generous bonuses based on how profitable their companies are over a longer period like five years. In other words, they don’t get paid for making decisions; they get paid for living with the consequences of their decisions. As an incentive for them to manage their companies wisely.”

“So their bonuses would be deferred?”

“Yes. That’s what you want -to encourage them to manage for the future.” “Not to mention removing the incentive to cook the books.”

“That goes without saying.”

There may be some cause for optimism. In an effort to restore public trust, the 2010 Dodd-Frank financial legislation gives stockholders of public corporations an advisory vote on the pay packages of CEOs and senior management. This power, known as “say-on-pay,” is a baby step toward reining in excessive CEO compensation that is disguised as performance based.

Perhaps it would make sense to make this provision mandatory. Sunlight, as the saying goes, is the best disinfectant.

originally published: May 2, 2015