Well, it’s about time! Corporate CEOs have finally started to defend themselves. After months, actually years, of taking a lot of guff over skyhigh pay, the Business Roundtable, an organization that represents 160 prominent CEOs, has come forward with a study that shows management compensation to be not so excessive after all.

Thank heavens. Because, what with all the excitement about back-dating and “spring-loading” of stock options, some were beginning to think that American business leaders really were unbearably greedy, if not downright crooked. It turns out that there are just a few bad apples after all.

The Roundtable Study was actually conducted by Frederic Cook and is based on data from 350 firms compiled by Mercer Human Resource Consulting, a division of Marsh & McLennan Companies. It shows that between 1995 and 2005, total median salaries for CEOs in the Mercer database advanced only 3% a year, well below the 4.2% growth in revenues or the 8.5% in net income compiled by the universe of corporations.

More relevant is that total compensation for CEOs advanced at a 9.6% compounded rate, while total shareholder return over the 10 years grew 9.9%. The broader pay figure includes salary and bonus, the grant value of restricted shares and stock options, and the “target value of earnout of any other new performance-based cash or equity awards.”

One of the reasons that reported management pay sometimes appears loco, according to Mr. Cook, is that the press often lumps into a single year’s compensation realized gains from stock options that have in reality piled up over a long period. Mr. Cook says that this approach is wrong, because options may or may not prove valuable, depending on what happens to the underlying stock, and realizing gains on options is akin to harvesting any other investment profit.Think of it this way: A CEO could exercise awarded options after two years and invest the proceeds in an unrelated stock. If that stock were to double, no one would consider the gain part of compensation. Similarly, proceeds from options on a rising stock should not be considered part of comp.

Further, while the opportunity to make a killing on stock options is certainly one of the perks of management, it is also one that aligns the interests of managements and shareholders. If the CEO scores big gains in his stock, presumably shareholder interests are being well served.

A New York Times article yesterday raised the issue of dividends paid on restricted stock, which were not included in the study. Because companies have not previously had to report on such payments, the total value of restricted stock dividends is unknown.

Asked to make an “educated guess,” Mr. Cook estimated that such dividends might total on average $135,000 a year. The use of restricted stock is growing, but has not been significant in the past. Also, most such awards vest within three years, reducing the cumulative impact on total compensation.

The “missing” stock dividends are not very significant relative to the most recent median figure for our leading corporate executives. In 2005, the typical head of a major corporation earned $6.8 million, which included a salary of $975,000, bonus of $1.4 million, and long-term compensation of $4.4 million.These figures were 3% off the 2004 totals; over the past five years compensation growth has slowed to a 5.5% yearly increase.

Another sleight-of-hand available to those who would slam our business leaders is the use of “average” as opposed to “median” pay. According to Mr. Cook, this allows “outliers,” or those with truly breathtaking numbers, to skew the totals. In reality, much concern about executive compensation focuses, rightly, on just those “outliers” whose compensation does not mirror performance, and that is totally indefensible. Mr. Cook said in an interview that average total CEO pay in 2005 was $9.3 million.

What should we think of these figures? Should we compare them with the $320 million earned by Howard Stern last year? How about the $60 million that racecar driver Michael Schumacher took home?

Increasingly, what shareholders want (and deserve) is some sense that CEO pay is tied to performance. The reason that Mr. Stern and Mr. Schumacher get paid what might be considered outrageous sums is that they can produce: an audience, revenues, or some other measure of return. So should it be for CEOs.The good news is that such a linkage is on the rise.

Earlier this year the Roundtable released the findings of its annual corporate governance survey; the results are heartening. Nearly 60% of the respondents reported an increase in the use of performance hurdles in setting compensation, up from 49% in 2005 and only 40% in 2004. Closely tied to the issue of executive compensation is the notion that boards of directors should be more independent of management. In other words, shareholders are no longer content to have the “buddy system” in the board room. On this front, too, there is progress. More than 90% of the companies in the survey reported having an independent chairman, lead director, or presiding director, up from 83% in 2005 and 71% in 2004. Moreover, the number of companies performing director evaluations is on the climb, as is the number of companies with formalized qualifications for directors.

Mr. Cook, who advises corporations on compensation issues, confirms these trends. “Compensation committees are becoming more conscientious and hiring more outside directors. Establishing pay is becoming a more rigorous process,” he says. These measures, and others, will over time dim the cacophony over excessive management pay. Setting transparent goals and guidelines and having impartial boards in charge of the process will go a long way toward making CEO pay more rational.

Nonetheless, there will always be “outliers” who will disgust even the most energetic free-market enthusiasts by injecting greed and nonsense into the equation. As Mr. Cook says: “Critics would have the sins of the abusers undermine confidence in the entire system. The basic concept by which CEOs get paid is a good, solid, defensible one.”

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