Monday, May 05, 2008

CEO Salaries

There's been a lot in the news lately about CEO pay packages and how they relate to company performance. The numbers are always mind-blowing, almost inconceivably large. How have we gotten to a point where these salaries are so stratospheric? Anyone who rises to that level in a company must have something going for them in terms of brains, personality, management skills-- at least I'd hope so-- but are they really THAT much more valuable than other workers? Sometimes, obviously, they aren't: the CEOs of companies that have crashed and burned can't possibly be doing their jobs right, yet even when they are fired for it, they walk away with severance packages worth more than most of us could ever earn in many lifetimes.
Why aren't more shareholders up in arms about this issue? How are some of these CEOs themselves not embarrassed by their pay?
I guess the world of corporate boards and compensation consultants is a pretty small circle-- they all think they deserve it themselves, so they vote for it for each other. I came across this chart while looking up a book I'm interested in reading, called Superclass. This chart of connections might strike some people as conspiracy paranoia, but to me, it's just not all that surprising that very rich and powerful people all have connections to each other, and that they would all do whatever they think makes their friends happy, whether that is donating to a favorite charity, or weighing in on how much someone deserves a huge pay package.


MEG said...

Companies "crash" for a variety of reasons, many of which have little or nothing to do with the CEO's performance and decisions.

Even when the decisions can be traced back directly or indirectly to the CEO, they shouldn't/can't be monetarily blamed for risks they take that don't pan out (unless of course they are committing a crime or violating the shareholders agreement or investment policy). It's their job to take measured risks, and anyway it's not like they operate freely in a vaccuum.

I personally DO think CEOs are worth many times the average employee - though I also do think their compensation is a bit out of control.

The problem is the stock option agreements they negotiate before being hired. They are promised x number of contracts even if they are fired for sub-par performance. It's industry standard so no CEO will take a job without that clause. That's why you see so many CEOs who get fired and receive millions in "compensation." Though I guess if the shares have tanked the stock options would be worth less...

John M said...

People are worth what ever you pay them. While I personally find CEO pay to be appaling. Top performers get paid top dollar. That is the way with many professions in the US.

Therrinn said...

The motive behind extremely high CEO salaries isn't payment for the CEO's work alone. By paying that one person at the top so much, you create a sort of tournament amongst all the other employees, where they want to eventually win the 'prize' i.e. high CEO pay. By paying them so much, you increase the productivity of all the ambitious people in the organization and may be able to recruit other high caliber people who want that opportunity.