CEOs Get Paid Too Much, Says Everyone

[GnaGnaMan]

Our economic system allows CEO's to get paid whatever those paying their salary feel they are worth. I think it would be very good PR for them, and set a good example, to accept a lower amount. It's not like one can't get by on $1M/year (for example) instead of $10M.

Would it be good PR?
Sure, lowly workers would like it but so what? Their peer group, those who give them jobs and money, might not react well to such a gesture. They would be shamed. They got a good thing going and such an act might spoil it.

 

[GnaGnaMan]

Athletes and actors and directors and singers are often mentioned along with corporate executives as having outlandish incomes, but the second quote here makes them different. Audiences pay to have entertainers entertain them and buy related products after being entertained, and advertisers pay to put advertising where audiences will see it while watching to have entertainers entertain them, so there are direct sales numbers that people in the entertainment industry can point to and say "this is how much people out there paid for what this star does". A company that makes chairs can't point to their growth in chair sales last year and say "this is how much people out there paid for what this executive does".

Actors are an interesting example, for 2 reasons:

1)I don't think anyone is under the illusion that star actors get all that money simply because they are so much more brilliant than their low-paid colleagues. We are simply used to them. We have a pretend personal relationship with them to the point that we follow the intimate details of their family lives.
I'm not saying that looks and skills play no role, just that those aren't in short supply. What distinguishes stars is simply that they had a lucky break at some point.

2)If there were no copyright law (or if it was more limited), that would limit the amount of money that can be made with movies. Actors would not be able to demand nearly as much money.
Copyright was created to encourage the production of cultural goods. You can't make a natural law argument for copyright, much less for the details of how it is designed.
This illustrates how society is involved in private contracts by providing the framework. Society chooses what to enforce.

 

[The Central Scrutinizer]

No, they are paid by shareholders of publicly owned companies. Private companies have owners, not CEOs.

"Private" companies can also have CEOs. Like the one I work for.

 

[sgtbaker]

I don't have a problem with CEOs making too much money, all by itself. There are other factors involved and it also depends on the service/product of the company. One factor is the compensation of the lower level employee. Is the company providing a fair exchange for employee's time? Is the company providing a fair exchange for the product/service it offers? For the second question, the significance is of the value is proportional to the necessity of the product/service. For instance McDonald's, IMHO, have increased the cost of their food, significantly, while the actual quality of the food has decreased. I also don't feel that they pay their employees a fair exchange for their hour. However, McDonald's is not a necessity so the consumer (in theory) has a lot more control. In an industry like P&C insurance, it is necessity (to some) so the consumer can only drive the prices, so long as there are companies that provide those fair exchanges. If the necessary service/product is offered at a fair exchange and the employees are paid a fair value of their time, I am unconcerned with what the CEO makes. My question is, how many companies out there meet that criteria?

 

[Matthew Best]

http://www.businessinsider.com/tyrel-oates-letter-to-wells-fargo-ceo-2014-10

I wonder if Tyrel Oates will get any response to his email to the CEO of Wells Fargo?

 

[LSSBB]

What has happened in America, and probably much of the rest of the world but I'm only familiar with America, is that shareholders have become stupid.

Once upon a time, stockholders were mostly business savvy professionals who studied companies and provided money to the ones that seemed like they were well run and would turn a profit, which would be returned to shareholders in the form of dividends. Of course, you could forego a future dividend income and just take an immediate gain by selling your stock at any time, and the business savvy people who owned stock would make that decision based on all sorts of very businessy factors.

Then along came the mutual fund. Having observed that stocks tended to make money on average, someone found a way to sell some sort of average stock. It was great. You could buy what the pros bought, and they usually made money, so you should, too. What could go wrong?

Well, what could go wrong is that people didn't realize why the stock market had been such a good investment. it was because it was, on average, tracking investments made by smart investors. As the mutual fund gained in popularity, that money became increasingly less intelligent. The investors were just blindly giving money to a fund manager. On the other hand, at least that fund manager was a business savvy sort of dude, so that helped.

Then came the growth of the 401(k) plan. Suddenly, everyone could get in on the game, and millions of people were blindly shoveling billions of dollars toward some very rich men, with absolutely no knowledge of where it was even going. All that mattered was that the statements showed increase in the share price, which was what mattered to those oh-so-savvy investors in cubicles and assembly lines across the land. Business, shmizness. Did my balance go up last month?

And what has that got to do with CEO pay? Well, the business savvy investors in days of yore knew that if you threw tons of money at a guy and gave him incredible control over how to spend it, he would find a way to spend it on himself, unless of course you watched him like a hawk. So, the shareholders hired a few hawks, called Boards of Directors, to make sure the CEO didn't steal or squander all the money. As the mutual funds and 401(k) "investors" became a much bigger share of the pie, CEOs figured out that no one was really watching over their shoulders. More and more of them became very influential over the BoDs, and they hired compensation committees to ensure who would set CEO salaries, and those same committees would determine a fair level of compensation for board members, who labored tirelessly at as many as three meetings per year. Surely that's worth a large sum of money, isn't it? Any objections? Raise your hands? Great.

Summary: The "little guys", like you and me, became a much bigger part of the investor class, but we really don't like to pay attention to what people do with our money. We just blindly keep shoveling in the hopes it turns out well. Knowing that no one is really watching, they take as much money as they can get away with taking.

Or, in other words, we have met the enemy, and they are us.


ETA: And what do I think we, as in the government who represent us, ought to do about it? In my opinion, nothing. Everything being done is being done right under your very noses, perfectly legally. As long as we have a progressive tax system, they will at least help fund the infrastructure necessary for the megacorporations to exist.

Nice story. Could use a couple of enhancements: facts, and accounting for institutional investors, such as pension funds.

 

[Meadmaker]

Nice story. Could use a couple of enhancements: facts, and accounting for institutional investors, such as pension funds.

Pension funds? You mean, like 401k plans? You mean like huge piles of money thrown blindly to a guy who gets paid a gigantic sum to watch over it? But who has to answer to a mob that only knows whether or not they made money last quarter?

Those pension funds?

 

[LSSBB]

Pension funds? You mean, like 401k plans? You mean like huge piles of money thrown blindly to a guy who gets paid a gigantic sum to watch over it? But who has to answer to a mob that only knows whether or not they made money last quarter?

Those pension funds?

Yes, those pension funds.

Say, how also about "activist" shareholders and giant shareholders like Icahn, Goldstein, Gates, and so on?

Have "little" shareholders ever had much say in CEO pay?

 

[Meadmaker]

Yes, those pension funds.

Say, how also about "activist" shareholders and giant shareholders like Icahn, Goldstein, Gates, and so on?

Have "little" shareholders ever had much say in CEO pay?

No, but "little" shareholders used to hold a very small portion of the company. Today, they hold a much larger portion.

The consequence is that the owners, i.e. the shareholders, are simply not paying attention. We get proxy ballots and throw them away, or we agree to vote them in accordance with the BoD recommendations. We don't really have a clue what's going on, but we don't really care, because what we see is the balance on our monthly brokerage statements

 

[PhantomWolf]

No, they are paid by shareholders of publicly owned companies.

No, they are paid by the company. They are hired by the Shareholders, but the Company is the entity that pays them.

Private companies have owners, not CEOs.

Incorrect, the only major difference between the two is whether shares can be purchased via a public exchange or not. Private companies are as likely to have a CEO as a public one.

Shareholders will keep giving the CEOs more money as long as they are convinced that he or she is generating more money for them.

Shareholders have little say in the matter actually. The payments are determined by the contract between the Company and the CEO. The Board is the group that negotiate on behalf of the company, not the Shareholders. Shareholders may be able to replace the Board and influence the contract, but have very little direct ability to do so otherwise.

Whether the CEO is good at doing his job or is good for the long-term health of the company is usually irrelevant and has no bearing on what they are paid. Shareholders are usually short-sighted and want money NOW.

Again not really true, pay is based on the contract, and that can be renegotiated if downwards if the company is doing poorly, or it might just be allowed to lapse if their is no right to renewal included.

I'd also point out that not all CEO's are getting paid millions of dollars a year. CEO's of companies that are making profits of hundreds of millions of dollars a year might be, but it's just as possible, if not more so that a CEO is making less than 100k when they are running small companies.

 

[The Central Scrutinizer]

Have "little" shareholders ever had much say in CEO pay?

Yes. And they still do.

But most of them don't care. See above.

 

[a_unique_person]

CEOs are paid by private companies. They should be paid whatever the company feels is adequate.

Which the CEO runs.

CEOs are not magical heroes, they are as human as the rest of us. They just happen to be placed at a critical part of the company where they have much more influence on pay than anyone else, and they exploit that influence.

 

[Doghouse Reilly]

Avarice knows no limits. There are people with billions of dollars who will still screw their waitress out of a two dollar tip.

Evidence?

ETA: To clarify, I wonder how you know that there are billionaires who would actually withhold a tip simply out of avarice rather than in response to bad service or something like that. I don't actually think anyone who has made it to "billionaire" level would do something that socially unacceptable.

I'm sure there are billionaires who would withhold a tip if they felt the service had been somehow unacceptable or offensive.

 

[psionl0]

I''m under the impression that shareholders have been largely powerless to prevent the huge payouts to CEOs. I've read of a number of cases in which they tried to.

Too true.

Several years ago, Telstra shareholders voted to deny the CEO Sol Trujillo a pay increase (not surprising since the value of Telstra shares halved while he was at the helm). He just thumbed his nose at the shareholders and granted himself a huge payrise.

 

[a_unique_person]

Too true.

Several years ago, Telstra shareholders voted to deny the CEO Sol Trujillo a pay increase (not surprising since the value of Telstra shares halved while he was at the helm). He just thumbed his nose at the shareholders and granted himself a huge payrise.

That's what they do.

 

[Lorentz]

In addition the level of responsibility you have is bordering on insanity if you have a lot of employees. Balancing the interests of the customers, employees and shareholders is a thankless task that not many people can accomplish. It's certainly not a job anyone can do.

Hear hear, you heart surgeons! THAT's what real heavy responsibility looks like!

 

[TragicMonkey]

Evidence?

ETA: To clarify, I wonder how you know that there are billionaires who would actually withhold a tip simply out of avarice rather than in response to bad service or something like that. I don't actually think anyone who has made it to "billionaire" level would do something that socially unacceptable.

I'm sure there are billionaires who would withhold a tip if they felt the service had been somehow unacceptable or offensive.

Okay, I don't know any billionaires, but I know five millionaires. One of them, my uncle (not by blood, thank God) insists "on principle" that pizza delivery guys should never be tipped "because that's their job". (He's also up to his eyeballs in corrupt dealings. One of the most notoriously corrupt men in the US government actually spit on my uncle once, for being such a corrupt bastard jerk.)

The other four are a family of completely inherited wealth-- their great-great-grandfather was a railroad baron or something. When one of their aunts died and left them an additional $6 million each, on top of the millions they already had, they graciously agreed to accept immediate payment of $400 each from the poor relation who had borrowed $3000 dollars from the old lady and had $1600 remaining to pay back. That's right, people with a net worth ranging somewhere in the $100 million range each, who had just inherited another $6 million, insisted on getting $400 from a poor relation.

And while I don't personally know the CEO of my own company, he did get a publicly reported raise of over 100% in the same year we had a hiring and raise freeze, and layoffs, due to "money being tight".

I didn't know the multi-millionaire partners who owned the oncology practice I used to work for, but three of them owned jets and one owned a Carribean island. They paid their staff very poorly. I once had to do some finance reports to see what kind of money the practice would pull in if one of the doctors was willing to work four hours on Saturdays in the underserved rural area. It would have brought us in, in profit, an additional $3.9 million. The plan was nixed, of course, because Dr Bastard plays golf on two Saturdays a month, and we could easily make up $3.9 million by laying off some nurses. So we laid off several nurses instead.

I don't think money, in vast quantities, necessarily makes people into jerks, but I do believe most people have jerkish qualities that vast quantities of money tend to bring out and flourish.

 

[3point14]

And while I don't personally know the CEO of my own company, he did get a publicly reported raise of over 100% in the same year we had a hiring and raise freeze, and layoffs, due to "money being tight".

This. This is it. If we weren't in the middle of a global recession caused I believe, in part, by the very rich sequestering large amounts of money offshore) then I think massive, ego based pay rises granted to the leaders of industry by themselves would pass with less comment. It's hardly scientific but almost everyone I know whether they work for the private or public sector has had a real world cut in their pay in the last few years because we're in a recession. Or just out of a recession. Or having a double dip. Or who know s what, but to have the pay of the leaders of industry be so dramatically increased while everyone else is 'tightening their belts' is a proper kick in the crotch.

My proposal is that their be regulation of CEO pay for limited liability companies.

 

[The Don]

A recent story on the BBC website:

http://www.bbc.co.uk/news/business-29587707

Directors of the top 100 listed UK companies now earn 120 times the average sum earned by their employees, according to a report by Incomes Data Services (IDS).

 

[The Central Scrutinizer]

Too true.

Several years ago, Telstra shareholders voted to deny the CEO Sol Trujillo a pay increase (not surprising since the value of Telstra shares halved while he was at the helm). He just thumbed his nose at the shareholders and granted himself a huge payrise.

Citation needed.