Rebecca Byrne

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Accountants Board Tin Ear Now Golden

Rebecca Byrne

Has the credibility of the new Public Company Accounting Oversight Board been destroyed before it's even up and running?

That's what some critics contend following an announcement last week that members set their own pay at $452,000 per year and the new chairman's salary at a whopping $556,000.

"This doesn't speak well to the ethics and integrity of its members when the first thing they want to do is pad their own pockets," said compensation expert Graef Crystal.

Ebbitt Grill Regulars

Although the board says the pay is necessary to attract the best talent, others note that $452,000 is more money than any other government employee receives, including the president of the United States.

The PCAOB is essentially an independent committee, of course, and will be funded through payments by accountants and public companies. But it was established by Congress as part of the Sarbanes-Oxley Act and has very broad powers, including the ability to enforce securities laws. The board, whose job will be to inspect audit firms, is seeking a one-month $1.9 million federal loan to cover initial expenses. "To me, this is smack in the middle of civil service," Crystal said.

To be sure, the level of compensation is still below what some accounting experts could command in the private sector, but Crystal said members of the civil service are always paid less -- and usually much less than $452,000 -- because of the prestige that comes with a government or quasi-government job.

Good benefits, great networking opportunities and so-called "deferred compensation" are all extremely alluring, he said. By deferred compensation, Crystal meant that government officials can command huge salaries upon leaving their posts "because their resumes are worth gold."

Afflict Thyself

Investors expressed outrage last year at some of the excessive payouts that executives had received while the stock market was tanking, and calls for linking compensation to operating performance have grown louder. So it seems odd that a new oversight committee would set such a high level of compensation for its own members before it has even accomplished anything.

"They've totally destroyed the credibility of the organization by this money grab," Crystal said.

As disturbing as the compensation issue is, experts say another decision by the board is equally wrongheaded. The committee decided to defer consideration of whether to rotate its own auditor every five years until the General Accounting Office has issued its report on mandatory rotation. Board member Kayla Gillan, who initially raised the issue, was hoping that the committee would be a model for all companies.

"We need an oversight board for the oversight board," said Arne Alsin, founder and principal of Alsin Capital Management and contributor to RealMoney.com, TheStreet.com's sister site.

Alsin said the board is supposed to set a standard for the entire industry and has failed to do that so far. He also rejects the notion that a huge salary is necessary to attract good talent, saying there are many Ivy League professors who would have worked for $100,000 a year. "It would have been a honor for these people to sit on a board like this," he said.

A Lot to You Maybe

Still, Scott Wendelin, chief executive of Prospect Financial Advisors, said now isn't the time to be trying to save money in the accounting industry.

Wendelin said "452,000 is insignificant in the context of investor losses over the past few years," adding that, "It's a very small price to pay to restart public confidence."

Charles Elson, director of corporate governance at the University of Delaware, agreed, saying that experienced people don't come cheap. Moreover, he noted, incoming members need a big incentive to come to an organization that potentially faces a lot of criticism and does not yet have a leader.

The Securities and Exchange Commission named Charles Niemeier acting chief of the board Thursday but has not yet appointed a permanent successor to William Webster, who resigned as chairman in November after it emerged that he had worked on the audit committee of U.S. Technologies, a company accused of fraud.

Lawrence Brown, an accountancy professor at Georgia State University, pointed out that while $452,000 may seem like a hefty sum, it is, according to the board, in line with what members of the Financial Accounting Standards Board get paid. Still, he added, the board's members soon will be under intense pressure to show they're worth it.

"They can't claim they're part-timers," he said. "They better be doing something."