Little can explain disparity in salaries of corporate executives. (A Shock to the System--Banking & Finance Special Report).

LARGE sectors of the American public are screaming about rising chief executive-to-worker pay ratios that are brushing up against the 500-to-1 mark, if they aren't already above it. But almost no one has noticed another rising pay-ratio series, that of one CEO to another.

What could possibly explain the pay gap as wide as the one between Berkshire Hathaway Inc.'s Warren Buffett--who earned an average of $350,000 a year over a three-year period--and Citigroup Inc.'s Sandy Weill--$127.5 million a year, or 364 times as much during the same time?

The short answer is: Hardly anything. That's the principal finding of my review of pay for CEOs of 180 major U.S. companies.

The average three-year pay for all those CEOs was $13.9 million. And the only explanation for the way they are paid is that board compensation committees appear to give them whatever they want. Those committee meetings are game shows like "Wheel of Fortune," with the committee chairman playing the role of Pat Sajak.

My study of three-year CEO pay at those companies showed you can account for only 15 percent of CEO pay variation based on differences in company size and precisely zero percent based on differences in company performance. I looked at companies with 2001 revenue of $8 billion or more. Each CEO had held his position for three years or more.

Anyone's guess

Pay used for the study included base salary, annual bonus, free share grants, the estimated present value at grant of stock options, payments under other long-term incentive plans and miscellaneous compensation. For the great majority of companies, the period covered was the three years ended Dec. 31, 2001.

What could possibly explain that awesome difference between CEOs, such as Buffett and Weill?

Average revenue over the three-year period explained 15 percent of the pay variation, according to regression analyses. But when I tried to coax my computer into improving its explanation of pay variation by taking account of company size (measured by revenue) and performance (measured by total return) over the three-year period, it gave up and declared that 15 percent was the best I was going to get.

So 85 percent of pay variation comes under the category of, Your guess is as good as mine. Does Warren Buffett have a conscience, whereas Sandy Weill does not? Do the folks out in Omaha, where Berkshire is based, have different values than the folks in Gotham? I don't have any good answers here.

You don't have to feel too sony for Warren, because his shareholdings are worth $36.1 billion. As for Weill, he's worth a mere $885 million in stock. Although Weill won the trophy for highest absolute pay, his pay, when calibrated for the immense size of his company, ranked him seventh down the list.

That list was headed by two CEOs who have departed under less-than-ideal circumstances. The first is Tyco International Ltd.'s Dennis Kozlowski and the other is Qwest Communication International Inc.'s Joe Nacchio.

Look at the column labeled "Three-Year Total Return Percentile Rank." The company in the study with the very best performance received a percentile rank of 100, while the company with the very worst performance received a percentile rank of 0. The median percentile rank was 50. Note that Sandy Weill, for all. his excess, delivered performance that was better than all but two percent of the companies.

At first glance, it would appear that high CEO pay is negatively correlated with total return performance. The average performance percentile rank for the 15 most relatively overpaid CEOs was 45, while that for the 15 most relatively underpaid CEOs was a higher 55. But my computer decided that there was so much scatter around those averages that there was no significant difference in performance between the Top 15 CEOs and the Bottom 15 CEOs. Neither was there any difference between the performance of either group and the middle 150 CEOs.

Overpaid and Underpaid

Some notable CEOs in terms of pay.

                                              Percentile       Pay
Company                 CEO                    Rank (1)   (in millions)

Tyco International      Kozlowski, L. Dennis      90         $118,168
Qwest Communications    Nacchio, Joseph PJ        9          $71,406
Cisco Systems Inc.      Chambers, John T.         4          $77,724
Comcast Corp.           Roberts, Ralph J.         63         $47,355
Cendant Corp.           Silverman, Henry R.       43         $37,025
Oracle Corp.            Ellison, Lawrence J.      68         $42,109
Citigroup Inc.          Weill, Sanford I.         98         $127,482

Tech Data Corp.         Raymund, Steven A.        88         $3,314
General Motors Corp.    Wagoner, Jr., G. R.       28         $10,018
Genuine Parts Co.       Prince, Larry L.          67         $2,121
Manpower Inc.           Joerres, J.A.             74         $2,280
7-Eleven Inc.           Keyes, James W.           63         $2,099
Georgia-Pacific Corp,   Correll, Alston D.        39         $3,090
Costco Wholesale Corp.  Sinegal, James D.         87         $3,371

                         Percent above,
Company                 below market (2)

Tyco International            619%
Qwest Communications           469
Cisco Systems Inc.             462
Comcast Corp.                  434
Cendant Corp.                  393
Oracle Corp.                   324
Citigroup Inc.                 306

Tech Data Corp.               -75%
General Motors Corp.          -75%
Genuine Parts Co.             -76%
Manpower Inc.                 -77%
7-Eleven Inc.                 -78%
Georgia-Pacific Corp,         -79%
Costco Wholesale Corp.        -80%

(1)3-year total return

(2)percent above, below average of 180 firms surveyed

Source: Bloomberg News

Graef Crystal is a columnist with Bloomberg News.