(FORTUNE Magazine) – DID YOU GET A 30% RAISE LAST YEAR? IF NOT, YOU MAY be among the millions of Americans who are understandably furious that the average CEO did get that big a pay hike, according to a new survey by the Corporate Library. That's the average CEO. Not many people get a 30% raise for mediocrity. Compounding the anger are the latest blowout cases, like the recent $150 million payday for former Gillette CEO James Kilts, whose deal to sell the company to Procter & Gamble has finally closed. Combine all that with today's far lower increases in average worker pay, and the elements are in place for a reaction against CEO compensation that's harsh, popular--and wrongheaded.

The latest example is the Protection Against Executive Compensation Abuse Act, just introduced by Representative Barney Frank (D-Massachusetts), whose district is home to lots of Gillette employees. His bill would, among other things, require shareholder approval of all CEO pay plans. That mandate would probably create chaos without doing much good. As big a problem as CEO pay has become, trying to whack it directly won't help anyone. To see why, we need to be precise about the problem.

The problem is not that CEOs are paid an awful lot of money, more today than ever. Many CEO pay critics, especially those associated with labor unions, condemn that aspect as evil in itself. "Obscene" is their favorite word. Occasionally CEO pay truly is obscene--Dick Grasso's $140 million take at the New York Stock Exchange was offensive. But such cases are freaks. No more than a handful of CEOs are in that league, while quite a few athletes, entertainers, and hedge fund managers make that kind of money without anyone thinking the amounts obscene, as CEOs constantly point out. So the pay levels, in themselves, aren't what's wrong.

Nor is the problem the much-ballyhooed ratio of CEO pay to average pay. Whatever it is--you can calculate it a dozen ways--it has definitely increased enormously over the past 20 years, and that too is often branded outrageous. Let me be blunt: I don't really care. The big-picture trend in American incomes over the past few decades is that the rich are getting richer and the poor are getting richer, but the rich are getting richer faster. Whether that is good or bad as a social phenomenon we could debate at length. For the moment I only want to contend that the increasing ratio, like increasing pay levels, is not in itself what's wrong.

The problem that underlies these highly visible symptoms is that many boards of directors are still failing in general to stand up for investors, the people like you and me whose interests they are legally required to defend. Paying the CEO is not the most important thing a board does. Choosing the CEO, insisting on a genuine debate about strategy, and saying yea or nay on major acquisitions are all more important. But paying the CEO is the most observable thing a board does, since shareholders get a detailed report every year.

That's why investors care so deeply about CEO pay--not because of the dollars or ratios, but because "it's the window into the boardroom," says Linda Scott, director of corporate governance at TIAA-CREF, the mammoth pension manager, with $340 billion invested. "Investors don't sit in the boardroom. We have no protection except through the board members, and we have no way of knowing how they're doing." With one major exception: "Compensation provides us with an objective way to see how they're doing. Are they putting more priority on investors' interests or on the executives' interests?"

If directors roll over and play dead when negotiating CEO pay, you can't hold much confidence that they'll suddenly turn tough and responsible in the rest of their job. Instead they'll approve value-destroying acquisitions, keep quiet as the strategy falls apart, and name an ill-suited successor. Example: After the board at Global Crossing (which later went bankrupt) gave CEO Robert Annunziata a contract that included a $10 million signing bonus, two million options at $10 below the market price, and guaranteed first-class air travel for his mom--plus specifying the exact model of Mercedes-Benz the company would buy for him, among many other deluxe provisions--should we have been surprised that trouble followed?

Remember that at publicly traded companies CEO employment contracts must be disclosed. Find them and read them. At many companies they're perfectly reasonable. But if you don't like what you see at a particular company, realize that it's suffering from more than a CEO-pay problem. It may have a problem that's much, much bigger.

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