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If CEO Pay Cap Comes, Let It Come From the Board

Some pro sports leagues have enacted pay caps to ease fans' concerns. So if a chief executive's compensation strikes investors as too far out of whack, should the corporate world consider the same measure? Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, votes yea. Contradicting him is Alan Murray, assistant managing editor at The Wall Street Journal. The two stated their cases to CNBC's Erin Burnett.

Murray called the very idea of instituting pay caps on executives "silly." He told "Street Signs" viewers that "putting arbitrary caps on a marketplace almost always fails." The editor's case in point: Whole Foods Market, which tried it with an initial CEO pay scale set to eight times the pay of the "average worker." Murray notes that the ratio was raised to 19 times the average -- and even that "didn't tell you anything," because it didn't factor in stock options. Caps that exclude options, he said, are "a joke."

Elson agreed with Murray that the real solution must come internally, from a board that "negotiates hard" with the C-level suite -- and that a cap imposed "by Congress" would be "a terrible mistake." But the professor insisted that a board and a CEO who agreed to a "fixed ratio" would be doing a company good. He pointed to DuPont as a firm with an "informal cap" in the form of an average worker/highest officer ratio, which has reaped a "good talent group" that feels fully "incentivized."

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  • Co-anchor of CNBC's "Street Signs," Amanda Drury is based at the network's global headquarters in Englewood Cliffs, N.J.