CEOs Get Paid Too Much, Says Everyone

[GnaGnaMan]

I look at it from the other end. When a CEO really messes up 1000 or 10,000 people can be fired. There are small towns in America in which 40% of the population works for a single business - towns that will fall apart if the local plant shuts down.

I am not prepared to say that all or even most CEOs have responsibilities that rival a heart surgeon, but the ones heading up large companies probably do.
Someone has to make the decision when the staff says recalling the product will cost X dollars, while not recalling the product will result in approximately 5 deaths - the total payout to the families would be 1/3 of X.

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ETA
Not to harp on the heart surgeon thing, but going back to the opening post, if we surveyed all sorts of people and they said that in a hospital, the highest paid employee can make no more than 4.6 times what the lowest-paid employee earns, then would that be the right way to determine a surgeon's salary? What about professional sports teams. Should the guy who bats .400 be paid only 4.6 times what the guy cleaning the shower stalls earns?

By that logic, sociopaths should be paid less because they don't care. Or is this non-caring something that makes them deserving of higher income?

In any case, there are some crucial differences between the heart surgeon and the CEO. If the heart surgeon screws up he can be sued and might even become guilty of negligent homicide. Of course, so might a school bus driver.
The CEOs responsibility is relatively risk free compared to the surgeon or the school bus driver. It is not so much responsibility as rather power. Neither heart surgeons or school bus drivers can make legal decisions that affect thousands of lives, or make and break entire towns.
Many people like having power. That makes it a fringe benefit. It's not something you need to pay a lot of money to people to accept it. You could easily find people who would pay you for it.

Even if you think current CEO pay is justifiable. How do you justify the meteoric rise over the last decades? Were CEOs underpaid back then? Are they underpaid now? Cause I don't see any stop to that rise.

 

[The Central Scrutinizer]

http://www.abc.net.au/pm/content/2007/s2084708.htm

So the vote was meaningless.

But the vote was non-binding and so Telstra plans to do nothing at all to change the way that it rewards its executives.

 

[Lorentz]

If you want to get technical you could do some math to figure out whether a CEO of a large company or a heart surgeon has more impact.

How many heart operations can a heart surgeon do per year? Some amount of those they are saving a life. In other cases their patient may die. I'm sure someone knows the numbers.

Now, CEO's have influence, in some cases, over 10's of thousands of people. In some cases millions of people are their customers.

So now all we have to do is figure out the exchange rate between doing surgery on someone and having them as a customer of your company.

So is a million people buying a product cheaper equivalent to a surgery on one person?

I've known a few CEOs of large companies. While they typically expend thought on how to make their organisation more profitable, I doubt much thought is typically expended on customers. Customers, employees and dollars are just tokens in the game.

I'd be very surprised if any CEO of a large company ever lay awake at night worrying if the customers were benefitting enough. Lying awake worrying about corporate politics or irksome legislation, yes. Responsibility towards customers or employees? Pshaw.

The surgeon is typically invested in the patient. The CEO is typically not invested in the customer or employees.

 

[eeyore1954]

I've known a few CEOs of large companies. While they typically expend thought on how to make their organisation more profitable, I doubt much thought is typically expended on customers. Customers, employees and dollars are just tokens in the game.


The surgeon is typically invested in the patient. The CEO is typically not invested in the customer or employees.

The typical CEO (depending upon the nature of the business) spends a lot of time thinking about customers. If the customers needs are not being met it becomes pretty hard to make their organization more profitable.
The typical CEO is invested in the customer as usually they are the lifeblood of the company.

 

[eeyore1954]

Of course, 20,000 people don't pay to watch you teach class.

And don't forget the million who may be watching on TV.

 

[psionl0]

So the vote was meaningless.

Yes.

 

[Meadmaker]

Interestingly, the tax system in the US has become less progressive. It does far less to correct income inequality than 30 years ago.
http://www.epi.org/publication/rising-income-inequality-role-shifting-market/

No doubt. In my opinion, tax rates are not as progress as they ought to be, but they are somewhat progressive. I'm all for making them more progressive, such as moving them back toward where they were pre-Reagan.

 

[Meadmaker]

The typical CEO (depending upon the nature of the business) spends a lot of time thinking about customers. If the customers needs are not being met it becomes pretty hard to make their organization more profitable.
The typical CEO is invested in the customer as usually they are the lifeblood of the company.

Undoubtedly, but I think Lorenz' point is not totally invalid.

The typical CEO is very invested in keeping the customer as a paying customer, but not necessarily in the actual welfare of the customer.

For example, contemplate how a modern CEO of a tobacco company views his customers. He wants his customers to be happy....until they die. He knows he is killing them, but he wants them to keep consuming his product.

On the other hand, I think Lorenz has an overly rosy view of heart surgeons.

 

[The Central Scrutinizer]

I've known a few CEOs of large companies. While they typically expend thought on how to make their organisation more profitable, I doubt much thought is typically expended on customers. Customers, employees and dollars are just tokens in the game.

I'd be very surprised if any CEO of a large company ever lay awake at night worrying if the customers were benefitting enough. Lying awake worrying about corporate politics or irksome legislation, yes. Responsibility towards customers or employees? Pshaw.

The surgeon is typically invested in the patient. The CEO is typically not invested in the customer or employees.

I've also known a few CEOs of large companies. Complete opposite of what you describe.

 

[TragicMonkey]

The high compensation itself is a risk to the company. Think about it: if you screw up really badly at work, you'll get fired. You'll have to find another job. You will need to worry about money.

Now take a uberpaid CEO. He makes some terrible mistakes. The company is hurt, seriously. They fire the CEO...who laughs and points out that with the hundred million a year he was being paid, he's built up enough savings that his great-great a grandchildren will live like kings without ever lifting a finger. Fire him? He'll cry all the way to his mansion in Monte Carlo.

How safe are you if the decisions are placed in the hands of someone who is insured against any negative consequences?

 

[The Central Scrutinizer]

Yes.

You made it sound like the CEOs had ignored the results of a meaningful vote.

 

[psionl0]

You made it sound like the CEOs had ignored the results of a meaningful vote.

I never used the term "meaningful vote".

Of course, "meaningful" doesn't necessarily mean "binding". The fact remains that two thirds of the company's shareholders including the country's Future Fund (which held 16.5% of Telstra shares) voted against the remuneration report. Some CEOs might sit up and take notice of something like that (although I might be wrong).

 

[Ladewig]

Even if you think current CEO pay is justifiable. How do you justify the meteoric rise over the last decades? Were CEOs underpaid back then? Are they underpaid now? Cause I don't see any stop to that rise.

Oh I agree there is a problem.

My point was (A) that 4.6 was absurdly low. In fact I think the very idea of constructing a ratio between CEO pay and unskilled labor pay is so absurd as to be meaningless. I suppose an argument could be made for a ratio CEO pay to skilled labor pay. But the janitor in the model airplane factory and the janitor in the airplane factory are probably making the same amount of money. That doesn't mean that the CEOs of both companies should have the same upper limit.

And (B) the idea of surveying people from all walks of life to decide the ideal CEO salary is rather useless.

But that is the topic of this thread, so I will answer your question within the set limits: I think 4.6 is way too low and 460 might be too high.

I might suggest tying CEO pay to stock price, but as others have previously pointed out, short-sighted CEOs can raise stock prices at the expense of long-term profitability.

 

[superfreddy]

The high compensation itself is a risk to the company. Think about it: if you screw up really badly at work, you'll get fired. You'll have to find another job. You will need to worry about money.

Now take a uberpaid CEO. He makes some terrible mistakes. The company is hurt, seriously. They fire the CEO...who laughs and points out that with the hundred million a year he was being paid, he's built up enough savings that his great-great a grandchildren will live like kings without ever lifting a finger. Fire him? He'll cry all the way to his mansion in Monte Carlo.

How safe are you if the decisions are placed in the hands of someone who is insured against any negative consequences?

Add to that the fact that many CEOs have golden parachutes built into their contract, making it very expensive and cumbersome to fire them.

 

[ddt]

While some high profile executives are prepared to relocate, the expected flight from the U.K. when the incremental tax rate went up to 50% simply didn't happen. I suspect that's because Mrs CEO (or Mr CEO in the case of female executives) was very happy in her (his) Holland Park mansion and didn't want to move to Luxembourg. Mr CEO could have moved but once you factor in Wimbledon, Henley, Ascot, salmon fishing, grouse shooting and so on he was going to spend 90 days in the U.K. anyway and he wanted to see his wife, kids and mistress

Wouldn't in that case the mistress also be in Luxembourg? Much more practical.

I look at it from the other end. When a CEO really messes up 1000 or 10,000 people can be fired. There are small towns in America in which 40% of the population works for a single business - towns that will fall apart if the local plant shuts down.

And who says that the CEO can bear that responsibility? I've sat as court reporter with interviews with CEOs of a now defunct company...

Now take a uberpaid CEO. He makes some terrible mistakes. The company is hurt, seriously. They fire the CEO...who laughs and points out that with the hundred million a year he was being paid, he's built up enough savings that his great-great a grandchildren will live like kings without ever lifting a finger. Fire him? He'll cry all the way to his mansion in Monte Carlo.

You forgot to add that the severance package is often even higher than the salary.

 

[The Central Scrutinizer]

I never used the term "meaningful vote".

Of course, "meaningful" doesn't necessarily mean "binding". The fact remains that two thirds of the company's shareholders including the country's Future Fund (which held 16.5% of Telstra shares) voted against the remuneration report. Some CEOs might sit up and take notice of something like that (although I might be wrong).

A non-binding vote carries the same weight as no vote at all.

 

[luchog]

Now take a uberpaid CEO. He makes some terrible mistakes. The company is hurt, seriously. They fire the CEO...who laughs and points out that with the hundred million a year he was being paid, he's built up enough savings that his great-great a grandchildren will live like kings without ever lifting a finger. Fire him? He'll cry all the way to his mansion in Monte Carlo.

How safe are you if the decisions are placed in the hands of someone who is insured against any negative consequences?

And that's not even including the "Golden Parachute" phenomenon. CEOs and directors and other officers commonly have a clause in their contracts that includes a sizable remuneration package should they be terminated from their positions. These packages can reach $100 million dollars; and are typically at least several times the executive's annual salary. So even if a CEO manages a company so badly he gets terminated by the shareholder vote, he still gets rewarded with a big bunch of money when he goes.

As for CEOs being invested in the well-being of the company, that's not always the case. Some are there just to see how much they can drain into their own pockets before leaving. Others simply so incompetent that they can kill a company through sheer poor management, and still manage to rake in insane amounts of money. I worked for Amazon.com during Joe Galli's tenure; and he was widely regarded as the worst thing to happen to the company, at least at the time. During his short tenure, he raked in multi-million-dollar bonuses, while stock prices plummeted; and his gross mismanagement completely destroyed one entire department, and lost the company a presence in that entire market. Mind you, his was not the only mismanagement; but it was his lead and refusal to allow others to capitalize in the company's position that led the loss. It's also estimated that he set company profitability back by years.

And keep in mind that he was doing this post-dot-com-bubble, after it had bust and the industry already in decline; and after Amazon had started to bounce back and accelerate growth.

 

[The Central Scrutinizer]

...and his gross mismanagement completely destroyed one entire department, and lost the company a presence in that entire market.

Which one?

 

[psionl0]

A non-binding vote carries the same weight as no vote at all.

It certainly meant that the CEO could thumb his nose at the shareholders.

However, the vote wasn't totally meaningless. Subsequent to this, the Corporations Act 2001 was amended to give shareholders a greater say in executive salaries:

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Given the issue of CEO exit packages has been in the media spotlight again recently, it's worth recalling that as a result of these reforms, termination benefits for executives that exceed one year's average base salary now require shareholder approval. Prior to this, shareholder approval was only required if termination payments exceeded seven years' total compensation.
.............................................................................................
You will no doubt be familiar with the 'two strikes' test, which the Gillard Government introduced that year as the centrepiece of reforms to strengthen the accountability and transparency of Australia's executive remuneration framework.

The two strikes rule is designed to empower shareholders to have a say in the remuneration paid to executives in the companies that they own.

The test gives shareholders unprecedented power over the pay of company executives.

If the company's remuneration report receives a 'no' vote of 25 per cent or more from shareholders at two consecutive annual general meetings, a resolution supported by a majority of shareholders can force a spill of the board.

http://ministers.treasury.gov.au/Di...013/006.htm&pageID=005&min=bfr&Year=&DocType=

 

[luchog]

Which one?

The online-auction/"garage-sale" micro-shop market, which was at the time fairly well split-up between eBay, Yahoo, and Golds, with eBay carrying the largest share. eBay had first-to-market dominance; but Amazon had an enormous customer-base, infrastructure, and brand visibility to capitalize on. It was obvious early on that Galli did not understand the auction/micro-shop market; and was not willing to provide the support it needed to succeed.

Several disastrous, and easily foreseeable, policy and implementation decisions later; they lost the online-auction market entirely. Other competitors soon folded as well, lacking the resources and visibility of either Amazon or eBay, leaving the latter with a practical monopoly. The micro-shop market was rolled up into an adjunct of their primary retail site, and the emphasis placed on small businesses over individual sellers. eBay soon developed a micro-shop platform that garnered a large user base and substantial market shares; and numerous others have sprung up, one of the most notable being Etsy.