Recruiting.com

Those of you who read my blog know that I think the hysteria around CEO comp is the largest of red herrings.

I believe that there are some CEO's who are overpaid but I also believe that the market dictates accurately what anyone should be paid.

Reporters who squawk about CEO comp as if it was the worst thing since the Ponzi scheme are at best lazy journalist and at worst grinding an anti-business axe.

And now comes evidence (via Fortune magazine) that this continued carping is having an negative effect on publicly traded companies.

Private equity firms are not publicly traded and are not beholden to shareholders, activists, wall street analysts or reporters. Therefore they don't have to produce unrealistic linear growth every quarter and can make financial decisions for the long term. They also don't have to worry about CEO comp:

[...] if PE owners decide that they need to bring in an outsider, they hold a valuable advantage over public companies: No one will know how much they've paid. Public companies have to report executive pay in SEC filings. Private companies don't.

In this era of outrage at grossly overpaid executives, any public company that paid, say, a $20 million signing bonus or offered a package with a potential nine-figure payout would be pilloried by governance activists and the press. But the reality is that some executives are worth that kind of money, and when private-equity firms offer it - as they do - no one knows.
As a result, they can raid companies that are legendary executive-training academies, using mammoth pay packages to lure away their most valuable assets in today's economy: their best managers. Exhibit A is General Electric superstar David Calhoun, who quit to head newly private VNU for a package that could be worth more than $100 million. (A person close to VNU says Calhoun "put a substantial part of his own net worth" into the company as part of the deal.)

Another GE star, Paul Bossidy, recently left the company to join Cerberus, a major private-equity firm. Procter & Gamble chief A.G. Lafley says, "We've lost a half-dozen people" to private equity. Home Depot has also lost a couple.

The trend has changed the high-stakes game of executive recruiting. "Top candidates are no longer waiting around to be recruited to a public company," explains über-headhunter Gerard Roche of Heidrick & Struggles. "Instead they're jumping to a private-equity firm and watching for the right opportunity to become a CEO. It wasn't like this ten years ago."

The irony of this is that those who continually yap about CEO comp are the same ones who also want their company's stock to rise continually. Well if your best talent is being lured away to private equity firms because they offer better pay your stock will soon suffer since public companies won't be able to attract the best talent.

This is called "cutting off your nose to spite your face".

More about the private equity craze here.