Somebody Get Richard Breeden a Calculator, FAST

….. and make sure it has LOTS of zeroes.
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Richard Breeden was Chairman of The Securities and Exchange Commission (SEC) from 1989 until 1993.

I hope he demonstrated a better basic knowledge of mathematical relationships when he was at the SEC than he did in a recent interview with CFO.com about the costs of complying with Rule 404 of the Sarbanes Oxley law (bold is mine):

Another former chairman, Breeden, downplayed the compliance costs resulting from 404. “The cost of 404 in the aggregate, from every single public company, is probably one ten-millionth of the cost of executive compensation. I don’t hear anybody saying we should get rid of executive compensation,” he said.

Now don’t get me wrong, executive compensation is very high, and is all too often is either undeserved, not based on achieving real results, or both.

But I have seen no evidence that Mr. Breeden made his statement in jest, and he is laughably, hysterically wrong with his numbers:

• The total costs of compliance with Sarbanes Oxley (not just Rule 404) are running at an estimated $6 billion per year, according to AMR Research (HT Line56.com via Sox First). For what it’s worth, I believe the $6 billion figure is a woeful underestimate, but that it is probably a good estimate for the cost of just complying with Rule 404. so we’ll stick with it for this post.
• This CNN link refers to research done by Lucien Bebchuk, a Harvard Business School professor who studies executive pay, showing that “From 1999 to 2003, the top five execs at the 1,500 largest public companies, as a group, took home $122 billion in salary, bonus and stock.” That’s roughly $24 billion per year for the five-year period Bebchuk compiled.
• Since Bebchuk looked at only the 1,500 largest companies and not every one of the roughly 3,300 listed on NASDAQ or the estimated 2,800 listed on the New York Stock Exchange, let’s double his figure, and use $48 billion as the total annual pay for the top 5 officials at all listed companies (smaller companies don’t pay their execs nearly as much as the big ones do).
• AMR’s estimate of Sarbox compliance costs is only one-eighth (not “one ten-millionth”) of the estimated $48 billion figure for executive compensation. Breeden’s statement was off by a factor of 1.25 million.
• For Breeden’s statement to have been correct, annual compensation of company executives would have had to have been (get ready) ……

  $60,000,000,000,000,000

  The number “60″ followed by 15 zeroes is 60 quadrillion dollars, a figure that is about 5,000 times bigger than the United States’ Gross Domestic Product of roughly $12 trillion (figure at Wiki is for 2004; the US GDP for 2005 was a bit higher than $12 trillion).

Mr. Breeden believes that Sarbanes Oxley should be applied uniformly to all public companies regardless of their size. I’d like to know why I should give any weight at all to the opinion of this mathematically-challenged man.