How much should CEO get paid? Who decides?

Last Wednesday in WSJ, an article about CEO payment caught my eyes. It is mainly about the “Say on Pay”, in which shareholders vote each year on whether CEO compensation is acceptable based on their performance. This is popular in Australia, Sweden, Britain and the Netherlands, but not in USA yet.

“Of the 50 or so U.S.companies where say-on-pay made it to the ballot last year, only Verizon and Par Pharmaceutical have decided to give shareholders such annual advisory votes.” Companies, such as Fidelity Investment, voted against say-on-pay, regarding it as getting overly involved in details better left to directors.

Other concerns about it include 1) if this is a company-by-company approach, companies in an industry which let holders vote on the pay could be at competitive disadvantage; 2) if investors have this right from now on, is it possible that the boards’ power would become seriously compromised? Similarly, last year, Sen. Barack Obama also introduced a say-on-pay bill in the Senate.

In this case, I find that, decision like this in business is quite common, and involves ethical issue (in my understanding). Shareholders invest money and confidence in CEO, expecting return from his/her performance. However, could the expectation and investment qualify shareholders to vote for CEO payment? Or who should decide that? How to measure the performance? Can we trust the few people in the board room? Meanwhile, as the WSJ report suggests, maybe it should be comprehensive legislation. I think it would be a long way to get there in USA.