CEO Pay Rise Shenanigans

But that's not how it's working in the marketplace. Despite being hard hit by the housing and mortgage slump, some companies including Washington Mutual Inc. and Toll Brothers Inc. have made surprising changes in benchmarks for executive bonuses going forward.

What they are doing is moving the goal posts in a way that all but guarantees executives will score big paydays. That's the result when you take out the bad stuff that could drag down compensation and include things that will likely prop it up.

It makes you wonder what boards of directors are thinking in the midst of a housing and mortgage crisis. Billions of dollars in shareholder value have vanished since last summer, leading to the ouster of CEOs at Citigroup Inc., Merrill Lynch & Co. and other companies.

Corporate boards, already under attack from shareholder groups for not properly monitoring risk, should be doing what they can to avoid controversy. Instead, some of them seem to be inviting more of it.

"Six years after Enron, and it's still clear there isn't a culture of board accountability," said Richard Ferlauto, director of pension and benefits policy at the American Federation of State, County and Municipal Employees, a Washington-based labor group representing government workers. "They are doing things that promote risk-taking with little downside for executives."

The compensation committee on Washington Mutual's board looked like it was on the right track by not giving CEO Kerry Killinger a cash bonus in 2007. After all, operating earnings fell 40 percent last year and the shares of the nation's largest thrift tumbled 68 percent in price.

But that kind of pay-for-performance accountability seems destined to slip away in 2008. The Seattle-based company late Monday disclosed in a securities filing that its board changed the executive pay structure to exclude certain credit costs when calculating cash bonuses.

Now, 30 percent of the bonuses will be tied to operating profits excluding expected mortgage defaults or the costs of real estate foreclosures. Another 25 percent of the calculation will exclude some restructuring and business resizing costs as well as foreclosures. The board will "subjectively" evaluate the company's performance in credit-risk management.

Washington Mutual acknowledged it faces a "challenging business environment" when disclosing the new pay metrics. But that now seems like something WaMu shareholders have to worry about more than executives, especially since the revised pay structure gives them little incentive to minimize credit costs, said analyst Frederick Cannon of the investment firm Keefe, Bruyette & Woods.