Does it take a scandal to curb executive pay?

The boards at two major corporations finally took a hard look at out-of-control executive pay; unfortunately it took brand-busting scandals to get them to do the right thing.

Directors at Wells Fargo said this week that they would cut the pay of the CEO and seven top executives by $32 million to “reinforce accountability of the company’s leadership.”

The move comes after the board dismissed four senior managers for their role in fraudulently signing up customers for 2 million accounts and credit cards. The sales scandal shattered Wells Fargo’s reputation in retail banking.

Last week, Volkswagen’s board finally showed some spine when it placed limits on executive bonuses. None will be paid unless the company makes more than $9.5 billion and a return on sales of 4 percent.

Again, though, the hard look at executive and board pay came only after engineers, eager to please their bonus loving bosses, wrote diesel engine software that cheated on emissions tests. That little scandal cost the company $16.5 billion.

The boards of directors at both of these companies, presumably made up of the top minds in their industries, are just now waking up to a very basic principle of greed. When you tie enormous riches to near-impossible tasks, people are going to lie, cheat and steal when performing those tasks to get the rewards.

The question now is whether

other boards at other major corporations will learn from the mistakes at Wells Fargo and Volkswagen. Will they design compensation packages that encourage hard work, reward good performance and yet discourage unethical behavior?

Or perhaps on a more basic level, will boards realize that the celebrity CEO making outrageous demands for compensation is unlikely to perform as well as a striver trying to make a name for himself or herself ?

When every study of executive pay suggests that most executives don’t deserve their pay packages and that boards of directors are not doing enough to protect shareholder value, it’s time that directors accept the lesson and do their job.

Unfortunately, if Wells Fargo and Volkswagen are any example, only a scandal will spur boards to do their jobs. Let’s hope that others will learn from the mistakes and take a firmer hand in supervising management teams.

Chris Tomlinson is the Chronicle’s business columnist. His commentary appears on Sundays and Wednesdays. He also posts a daily news analysis at Houston-Chronicle. com/Boardroom. chris. tomlinson@chron.com twitter.com/