anyone else bugged about CEO pay?

[palomalou]

I am lucky--I HAVE a job with a decent middle-class salary. System-wide, we have had no raise in three years. It really bugged me to read that CEO pay rose 12% last year. Anyone else?

 

[brewer12345]

If you feel you are underpaid, go test the market. Simple as that.

 

[rescueme]

I am lucky--I HAVE a job with a decent middle-class salary. System-wide, we have had no raise in three years. It really bugged me to read that CEO pay rose 12% last year. Anyone else?

Any CEO or your CEO? If it is your CEO, then I understand your complaint.

Total pay (for any position, including a CEO) is made up of a lot of things, not only salary (which I assume you are measuring yourself against).

A CEO (IMHO) get's pay/benefits based upon the risk that they take, both for themselves, but also the company as related to the employes and the owners (e.g. stockholders). One could argue that they get a "golden parachute" if they get let go regardless of performance, but that again was subject to a contract that they struck with their manager (e.g. the board of directors).

I relate it to a discussion that I once had with my dentist. I "harassed" him, speaking about all the money he made (as compared to me, at the same age, as a lowly "wage slave"). His answer? You could have followed the same path as me, including taking all the risks (e.g. education, risk to start up a practice, including a lot of up-front costs for equipment and so forth, while still paying off education loans).

He was right.

Remember, a CEO does not state his own salary/benefits. H/She has a "boss" (same as you, as a wage slave) and that is the board of directors.

If their skills (in their own behalf, on pay/benefits) work to their advantage, then good for them. That's part of the free market system we currently have in this country.

There's nothing to say that you as an individual can't do to follow in their steps, is there?

 

[rescueme]

If you feel you are underpaid, go test the market. Simple as that.

Amen. Make your own future - don't depend on others to make it for you ...

 

[ziggy29]

Assuming the market really is private and not subsidized (or "bailed out" by the taxpayer), it is what it is. Having said that, I do think a steadily increasing gap between the fortunes of the elites and the rest of us is not an encouraging sign for widespread prosperity or "domestic tranquility." It doesn't make the masses feel good when their pay is frozen (or cut), their benefits watered down and their pensions yanked when they see the elites in their organization getting massive raises and bonuses. From the standpoint of FIRE it makes it feel like retirement is no longer for the "little guy" for the most part, unless said "little guy" lives way below his/her means for decades.

I also find it personally objectionable when executives get huge bonuses for "cost cutting" through massive layoffs or pulling off mergers which throw thousands of newly "redundant" people out of work. Again, as long as it's a private thing and not taxpayer subsidized I don't expect (or want) government to stop it, but that doesn't stop me from thinking it's a rather economically ghoulish practice (profiting on inflicting misery on "ordinary" folks). All too often in history, when the "elites" get richer and richer as most people feel themselves going in reverse, the ending is rather ugly and bloody. I hope we can avoid that here.

 

[FinanceDude]

We hear stories of the obscene buyouts and such, bit really, has anyone on here BEEN a CEO of a major company? I haven't either, but I don't think its all peaches and cream........

 

[ziggy29]

Remember, a CEO does not state his own salary/benefits. H/She has a "boss" (same as you, as a wage slave) and that is the board of directors.

Partially true, though many of these corporate BODs have a rather incestuous relationship with each other. Many of these executives sit on the boards of each other's businesses, and that creates the appearance of a "quid pro quo" ir mutual backscratching where each can rubber stamp each other's huge raises and bonuses (or worse, golden parachutes).

 

[REWahoo]

Partially true, though many of these corporate BODs have a rather incestuous relationship with each other. Many of these executives sit on the boards of each other's businesses, and that creates the appearance of a "quid pro quo" ir mutual backscratching where each can rubber stamp each other's huge raises and bonuses (or worse, golden parachutes).

I thought "incestuous BODs" were illegal in 46 of the lower 48...

 

[Independent]

In a perfect market, CEOs of large companies would earn more than the rest of us because they can add a lot of value. They coordinate labor, technology, marketing, finance, and all the other things that make a large organization work. That means they have a lot of leverage to increase or decrease profits, and boards would try to find the "best" people for the jobs.

But we don't have a perfect market in CEOs.
1) CEOs may pick board members, who have pretty cushy jobs, then the board members compensate the CEO. That looks like a problem.

2) Board members are frequently CEOs themselves. Suppose that salaries for plumbers were set by other plumbers, with no additional review. I can see a problem there even if the plumbers themselves believed they were being fair.

3) The incentives for CEOs seem to be short term and one-way, while stockholders' interests are long term and two-way. James Cayne walked away from Bear Stearns with about a quarter billion dollars, while the stockholders were nearly wiped out (and the "nearly" part may have been some type of gov't bailout).

4) It's hard to tell if a CEO is really doing a good job. While US auto companies were losing market share every year to the Japanese, US boards said they had to pay CEOs huge amounts "to get the best talent". But the Japanese companies were paying lots less, never tried to raid all that Detroit talent, and were kicking __ . So maybe the US boards didn't know how to measure excellence.

So I don't think the market is working perfectly for CEO compensation. But I don't know if this is such a "problem" that we ought to have a gov't "solution". I don't feel bad about taxing those extremely high incomes, but that's not a "penalty for doing bad things", it's just a matter of we need to get our taxes where the money is. It bugs me when I see CEOs congratulate themselves on what wonderful people they are, or get hurt feelings when someone says they're overpaid, but it doesn't bug me enough to think we should "do something".

[On a separate issue, it's not true that the excess CEO income is merely hard work. CEOs work (at most) maybe 3x as hard as the average person I worked with, but get paid 100x as much. Millions of Americans would be perfectly happy to work that much harder for that much more pay. Even when the market is working perfectly, people get paid for stuff other than hard work.]

 

[palomalou]

it's not me

Actually, I am not so concerned about myself, as I plan to retire in one or two years. In my field I am very successful. And of course since I chose after earning a doctorate to teach, why should I, with 25 years of experience, expect to get more than the national median salary ? No social benefits to teaching. And I'm doing better at keeping my workday under 11 hours.
But it bugs the h*ll out of me that with the unemployment rate as it is and has been, BODs would reward the CEO for sucking the life out of the employees they keep.

 

[Hamlet]

I agree with all of this. Another issue that causes excessive CEO pay is the current use of compensation consultants to set executive pay.

They go out and find the median pay for "comparable" jobs. Since no one is going to say that their CEO is below average, that causes a constant ratcheting up as the lower paid CEO's get raised to the median, with raises the median, which causes other CEO's to get raises, etc, etc.

I'm not clear on a good solution, except trying to get the Board of Directors of companies you own stock in to pull their heads out of their butts.

A typical CEO has a lot more influence on the people setting his pay than a real free market would give.

The saddest thing about it is that no one has ever shown that this crazy pay actually leads to better company performance.

In a perfect market, CEOs of large companies would earn more than the rest of us because they can add a lot of value. They coordinate labor, technology, marketing, finance, and all the other things that make a large organization work. That means they have a lot of leverage to increase or decrease profits, and boards would try to find the "best" people for the jobs.

But we don't have a perfect market in CEOs.
1) CEOs may pick board members, who have pretty cushy jobs, then the board members compensate the CEO. That looks like a problem.

2) Board members are frequently CEOs themselves. Suppose that salaries for plumbers were set by other plumbers, with no additional review. I can see a problem there even if the plumbers themselves believed they were being fair.

3) The incentives for CEOs seem to be short term and one-way, while stockholders' interests are long term and two-way. James Cayne walked away from Bear Stearns with about a quarter billion dollars, while the stockholders were nearly wiped out (and the "nearly" part may have been some type of gov't bailout).

4) It's hard to tell if a CEO is really doing a good job. While US auto companies were losing market share every year to the Japanese, US boards said they had to pay CEOs huge amounts "to get the best talent". But the Japanese companies were paying lots less, never tried to raid all that Detroit talent, and were kicking __ . So maybe the US boards didn't know how to measure excellence.

So I don't think the market is working perfectly for CEO compensation. But I don't know if this is such a "problem" that we ought to have a gov't "solution". I don't feel bad about taxing those extremely high incomes, but that's not a "penalty for doing bad things", it's just a matter of we need to get our taxes where the money is. It bugs me when I see CEOs congratulate themselves on what wonderful people they are, or get hurt feelings when someone says they're overpaid, but it doesn't bug me enough to think we should "do something".

[On a separate issue, it's not true that the excess CEO income is merely hard work. CEOs work (at most) maybe 3x as hard as the average person I worked with, but get paid 100x as much. Millions of Americans would be perfectly happy to work that much harder for that much more pay. Even when the market is working perfectly, people get paid for stuff other than hard work.]

 

[ziggy29]

The saddest thing about it is that no one has ever shown that this crazy pay actually leads to better company performance.

It's hard to measure CEO performance in many ways. One can look at the success of the business under their guidance, but there's not necessarily a causative effect between strong corporate performance and the CEO's efforts.

I suppose there are CEOs who clearly and visibly add so much value that they'd be worth almost whatever you paid them; Warren Buffett and Steve Jobs come to mind here. (Though it should be pointed out that Buffett's salary is, and has been, $100K per year for many years with no raise.) But in most cases, the added value that some CEOs contribute is far less obvious.

 

[Bimmerbill]

More power to them if they can negotiate a good deal.

 

[MasterBlaster]

If a CEO can increase profits and value to the shareholders then he is worth every penny that he gets.

If a CEO has a sweetheart/insider deal to take what really belongs to the shareholders then hang him from the lanyard.

But really, Why do people begrudge others that do really well and think that somehow the government is entitled to confiscate their wealth ? Or worse, to confiscate their wealth and redistribute it to those that the government feels deserve it more ?

 

[52andout]

My rule of thumb for charities is to only contribute to those whose CEO makes less than twice we did combined in our peak earning years (two professionals working over 50 hours/week so we were paid quite well)

It's hard to find charities to give money to if that is the criteria.

 

[ziggy29]

But really, Why do people begrudge others that do really well and think that somehow the government is entitled to confiscate their wealth ? Or worse, to confiscate their wealth and redistribute it to those that the government feels deserve it more ?

Perhaps. But as I noted above in my thoughts, it's possible to be disgusted by it without a demand that the government "do something" to address it. If there's no taxpayer subsidy or bailout involved it's really not the government's business to intervene IMO.

Just because someone says they find it obscene does not mean they advocate government intervention.

 

[Hamlet]

It's not hard to negotiate a good deal when you are negotiating with a group of your pals who are paying you with someone else's money.

You're right though. The blame is not with the CEO's themselves, it is with the brain dead Board of Directors who sign on for these deals.

Of course, it is mighty hard for shareholders to really affect the Board of Directors in most companies.

More power to them if they can negotiate a good deal.

 

[ziggy29]

You're right though. The blame is not with the CEO's themselves, it is with the brain dead Board of Directors who sign on for these deals.

But are they brain dead? If CEO A is on the board of Corporation B, and CEO B is on the board of Corporation A, they don't have to be brain-dead -- just willing to divert more corporate profits for each other, away from the shareholders and employees and toward themselves. You support my big bonus and I support your big bonus.

The quid pro quo here may seem slimy, but there's probably nothing "brain dead" about it. Corporate board rooms are like a fraternity of executives.

 

[Hamlet]

I'm not advocating any government action, aside from possibly (with the caveat of first do no harm in mind) some changes to shareholder control rules to strengthen shareholder control over the companies they own.

I'm annoyed that failure CEOs are getting paid huge money at the expense of shareholders.

I'm annoyed that my returns are being sapped by a foolish escalation of CEO pay that does not seem to require any real increase in competence from the CEO pool in general.

The shareholders of public companies really lack the ability to set CEO pay rationally. The structure of our companies leaves that to the Board of Directors, whose interests are often not aligned with shareholders.

It's no longer pay for performance. Its huge pay no matter how bad you screw up.

If a CEO can increase profits and value to the shareholders then he is worth every penny that he gets.

If a CEO has a sweetheart/insider deal to take what really belongs to the shareholders then hang him from the lanyard.

But really, Why do people begrudge others that do really well and think that somehow the government is entitled to confiscate their wealth ? Or worse, to confiscate their wealth and redistribute it to those that the government feels deserve it more ?

 

[Animorph]

Seems like it would be tough to convince a person who is probably already a multi-millionaire to pick up his family, move to a different state, work 8 and more hours a day, all for a middle-class salary. FIRE probably applies to CEO's too. However there have certainly been plenty of examples of complete rip-offs. Kind of like some NFL first round draft picks!

 

[Katsmeow]

But really, Why do people begrudge others that do really well and think that somehow the government is entitled to confiscate their wealth ? Or worse, to confiscate their wealth and redistribute it to those that the government feels deserve it more ?

I don't begrudge people doing well and don't think the government should confiscate wealth. That said, I basically agree with ziggy29's and Independent's comments. I do think that because of the structure of how it is set up the "market" isn't working effectively and it result with CEO's scratching each other's backs (through being on boards of various companies) and ending up with pay that is ridiculous in comparison to the value being given.

And, here's the thing. Pigs get fat and hogs get slaughtered. I am not an advocate of government regulation for this kind of thing and think that corporations should regulate it themselves. However, if the structure is such that it can't stop be the hogs who are so greedy at the expense ultimately of the people working for the companies and at the expense of the shareholders then ultimately regulation from the government will come. And it will come because of the hogs who refused to just be pigs.

 

[MasterBlaster]

What many of you are complaining about is, in many ways, yesterdays news.

mutual funds and pension funds have begun to flex their voting rights/duties. Corporate governance is much more the game these days.

There still are problems, but not nearly so much as before.

Pigs get fat and hogs get slaughtered

your metaphor is out of context here.

 

[Texas Proud]

Nope... not that concerned that much...


Now and again I will complain when I read about someone like Eisner at Disney who pulled in a billion over a couple of years... but I did read that the value of disney went up many many billions, so the shareholders also made out well...


You also have to wonder about the ones who get paid a lot while the company is going down the toilet... like Home Depot... but, since I did not have direct skin in the game (I am sure I did own a lot in MFs... but that is removed enough for me)... I don't care about them either...

In the scheme of things... executive pay is nickel and dimes in most companies... take a big bank executive... I remember reading about Goldman and Chase... both CEOs are in the $27mill to $50 mill range (IIRC)... but the companies are making billions... and have trillions of $$$s of assets... so even if you cut their pay in half it will not have much effect on the bottom line.... now, the big bonuses given to all the traders etc. who don't do a whole lot... well, that DOES matter as it is a few billion....

 

[glippy]

If you feel you are underpaid, go test the market. Simple as that.

As a corollary, if you feel the CEO's are overpaid, don't invest in the company.

 

[Independent]

As a corollary, if you feel the CEO's are overpaid, don't invest in the company.

I forgot to add this to my list

5) It's a cartel. You can't buy stock in a US company that's not impacted by the CEO compensation spiral, so you can't just opt out. Even if you find a company with a board that is serious about only paying "market" comp, the market is distorted by the actions of other boards.