Executive compensation has certainly been a hot topic in 2006, with options backdating clearly at the forefront. The larger question of income inequality also shed a great deal of light on the income of corporate executives and financial types like hedge fund and private equity managers.

On the last business day of the year we guess it is appropriate that two leading sources of financial news publish stories on executive compensation. Julie Creswell in the New York Times reports on the way new executive hire pay packages have been structured so as to minimize the risk to the new executive.

Such golden hello payments are intended to make the executive “whole” — in essence to treat the executive as if his career were one smooth ascent with no costly interruptions. And these multimillion-dollar payments and perks are used to draw in not only chief executives, but virtually every member of the executive suite. If “golden parachutes” — rich exit packages of extra cash, stock or retirement benefits — are needed at times to kick out chief executives, golden hellos are increasingly needed to get them in the door.

These pay packages have a number of implications including the fact that these benefits are clearly not available to lesser workers, but in addition they may work at cross-purposes to other common incentive pay systems.

The existence of the golden hello undermines the very reason stock options and executive pensions are offered in the first place — to encourage executives to hit performance targets and then to stick around to receive the full value of their compensation package.

We found it interesting that on the same day a high-profile executive at J.C. Penney (JCP) was shown the door in the most public fashion. Joann S. Lublin and Cheryl Lu-Lien Tan in the Wall Street Journal report:

Ms. West’s severance package will total close to $10 million, including accelerated vesting of stock options and restricted-stock units that she was granted to compensate her for forfeiting benefits at Capital One, according to spokeswoman Darcie Brossart.

Stay tuned.  We have not heard the end of the end of the executive compensation story. A new Congress will be incline to at least (rhetorically) explore the widening income gap. Executive compensation will in all likelihood not be spared a good going over.

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