Seems to me like the subject of excessive CEO pay may be blown out of proportion. Take for instance, all those CEO’s of privately held companies. It is THEIR company. Often the CEO is also the founder of the company. They are the ones with the idea, who took the risk so why shouldn’t they earn whatever they deem is appropriate? And yes, they can be worth it!
On the other hand there are CEO’s in publicly traded companies. That is a different animal. Certainly more complex with SEC and other compliance standards in place for publicly traded companies. Often larger organizations by most any measure. Who can blame a CEO for negotiating the best compensation package that they can for themselves? Everyone does that. Perhaps they are just better at it than others in the organization. Often it is the variable pay component that puts the CEO comp “over the top” with hundreds of times the average worker’s wage in the organization. But if they achieved great results for the company in order to be paid a significant bonus – then that’s what it is all about, isn’t it? Instead of blaming the CEO seems to me like the Compensation Committee and the Board of Directors should be in the negative spot light. It is the Board who generally sets and approves CEO and top executive compensation. Maybe they need to improve the design of the variable pay plans. Maybe they get paid in a similar fashion and don’t want to improve the design. Regardless, executive pay is public information, and if someone does not like it, they do not have to invest in the company or work in the company. Or in today’s job market, maybe they do….
Tax loopholes and how these highly paid executives are able to protect their earnings — well that is another story!
What is the case in your organization today? Are you or your executives over paid?
5 Responses
I have to say that I largely agree with Casey. It’s hard to blame the executive for getting the most they can (nearly everybody wants to), and especially in the case of privately-held organizations.
In public companies it is different, and like Casey says, it’s the compensation committee that approve the plans, and their needs to be better accountability there (until the past few years of increased regulations and scrutiny, it was often more of a “old boys” club, but much less so today). It’s time for compensation committee to stand up to CEOs and to expect performance before pay, and to be accountable for how pay at the CEO level is determined.
Posted on May 27th, 2009 at 7:09 pm
For me it comes down to the fundamental differences between a corporate structure and an entrepreneurship! I think people make different decisions based on that difference in mindset. I believe you do a job differently if you are in the hot seat, struggling to boot strap, forced to build something from nothing, versus in a more complacent setting where you have not been singled out to stand and deliver and your personal performance will not make or break the day to day operations or bottom line. I think every corporation dreams of having all departments run by a team of entrepreneurial employees.
Posted on May 29th, 2009 at 3:08 pm
I am not thinking about compensation right now. Well, maybe there should be some damages paid to me. Mr. President, is there anything in the stimulus package for dawgs like me? My master shaved me…. yup. I have a summer buzz.
I have to admit while I look funny, it feels really good. I now understand why my boys have continually done this.
Posted on June 5th, 2009 at 7:56 am
Just to defend execs a little – in reality to foster a little discussion on an already controversial issue. We see a lot of criticism these days about Exec Rem, and sometimes I believe it’s becoming a crazy thing about which almost everybody has an opinion today.
‘Appropriate’ in terms of…? What I mean here is that, according to what we Comp people normally call “compensation equity”, “appropriate” can mean internal equity, external equity-competitiveness, “risk-reward equity” if we feel that individual or team results and behaviours are ok, even “ethical equity” if we feel that earning a certain amount of money is “too much”, and many more things.
What is “appropriate” and what is not? Who decides that? The media, the public in general, the governments, the shareholders? And on what basis? How should they decide that? On opinion? Just on share price and dividend decrease? Or on other company figures? Or on some or all of the above mentioned “equities”?
Probably large figures are clear: perhaps having your nice, average CEO make $600,000 a year in fixed and perks, $500,000 in short term variable and $500,000 in exercised SOs is “wrong” in 2008, if the company reduced sales and profits. But what if other companies did worse? Or what if that reduction was with no lay-offs and no salary freezes?. And overall, what is really “wrong”? Making $300,000 in total is “good” and then the guy can be considered a good boy?. This line of reasoning is strange: so if I buy a series 3 BMW with the money I made as top exec, that is fine, but if I buy a Lamborghini -hey that’s too much, that is wrong. If my children go to an average, middle of the road school, that’s OK, but if I want to give them the best possible education (which is expensive), that is wrong.
Are we in fact considering that Top Execs hold an effective supply-side quasi-monopoly on labor force that, as any other monopoly, should be broken/limited? When did we discover that? Weren’t we in a free market economy? If so, then those people maybe are there because they were “bought” among heaps of competitors and were in high demand, and the rewards they make are there because they won a long, difficult competitive race. Maybe it’s just that other competitors want those positions for themselves, and criticise “high” rewards because they envy them.
I said all of the above to offer some ideas and with all due respect – no offence intended at all to anyone. Any thoughts?
Mario Herndandez
HR & Organization Consultant
Posted on June 8th, 2009 at 11:15 am
Dang it…..looks like AIG is at it again……
http://seattletimes.nwsource.com/html/businesstechnology/2009444136_apusaigbonuses.html
I say NO!!!!
Posted on July 10th, 2009 at 10:36 am
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