# CEO and Other Top Executive Salaries/Bonuses **URL:** \ **Category:** Great Debates\ **Created:** [February 11, 2009, 7:52pm UTC](https://boards.straightdope.com/t/ceo-and-other-top-executive-salaries-bonuses/485414 "2009-02-11T19:52:59Z")\ **Posts on this page:** 18\ **Page:** 3
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [February 12, 2009, 11:42pm UTC](https://boards.straightdope.com/t/ceo-and-other-top-executive-salaries-bonuses/485414/41 "2009-02-12T23:42:28Z")
> [@gonzomax](#): > > [MoneyWatch: Financial news, world finance and market news, your money, product recalls updated daily - CBS News](http://industry.bnet.com/pharma/1000909/as-layoffs-begin-wyeth-execs-get-75-million-severance-package/) Top execs get 75 mill in cash as the company lays off tons of workers. Seems reasonable to some people. They are special people who deserve so much more. I believe that was because of a severance agreement signed back in 2006. Our resident compensation consultant can verify, but companies often enter into such agreements to retain high quality management teams. As for layoffs, they aren’t necessarily a bad thing or a sign that the company is in trouble. In a large company, there are often lots of redundancies and fat that can be trimmed. I know everyone hates to lose their job, but how much is it worth if a CEO can make a company 10% more profitable by laying off 5% of the workforce? ---
**Author:** ![Algher](https://avatars.discourse-cdn.com/v4/letter/a/3d9bf3/32.png) [@Algher](https://boards.straightdope.com/u/Algher)\ **Post date:** [February 12, 2009, 11:52pm UTC](https://boards.straightdope.com/t/ceo-and-other-top-executive-salaries-bonuses/485414/42 "2009-02-12T23:52:19Z")
msmith537 you are correct - severance agreements are typically part of the initial hiring negotiation. gonzomax - I SPECIFICALLY said that investment banks are more likely to make huge annual cash BONUS payouts based on prior year performance. Merrill was a financial services firm - they operate a little differently from other firms. Financial services is big on cash bonuses (again - not salary, bonus). Technology has lower cash pay and more stock pay. Old-school manufacturing tends to use performance share plans to due to the capital intensive nature of their business (knowing how to run an EVA model can help you make some good money at one of them). ---
**Author:** ![Algher](https://avatars.discourse-cdn.com/v4/letter/a/3d9bf3/32.png) [@Algher](https://boards.straightdope.com/u/Algher)\ **Post date:** [February 12, 2009, 11:56pm UTC](https://boards.straightdope.com/t/ceo-and-other-top-executive-salaries-bonuses/485414/43 "2009-02-12T23:56:26Z")
> [@BJMoose](#): > > What often happens is Bob sits on Dave’s board and approves his compensation package, while Dave sits on Bob’s board and approves _his_ compensation package. Rather like the “interlocking directorates” of yore. > I’ve long thought the biggest drawback to rewarding compensation on the basis of stock performance is that it encourages one to make business decisions that push up the short-term stock price, even if those decisions are, in the long run, bad for the company. Again - give me a few companies where the CEOs sit on each other’s compensation committee. If it is such a problem, there must be plenty of examples. After all, board membership is public, interlocks have to be disclosed to the SEC. The bigger problem with stock compensation is that it rewards the exec for breathing. His shares can get value with a 5% increase, even if the market goes up 20%. If the exec sells his shares, he has to file with the SEC and it is public disclosure - so short term run-ups are not as problematic as it might seem. You WILL see fraud out there, but that is a separate issue. ---
**Author:** ![Mijin](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mijin/32/9369_2.png) [@Mijin](https://boards.straightdope.com/u/Mijin)\ **Post date:** [February 13, 2009, 12:45am UTC](https://boards.straightdope.com/t/ceo-and-other-top-executive-salaries-bonuses/485414/44 "2009-02-13T00:45:09Z")
> [@msmith537](#): > > What part of “the competition gets more intense [as you go up the ladder]” is that inconsistant with? > > To answer your question, as you rise up to the level of CEO, or other high executive positions, you generally don’t see a want ad on [Monster.com](http://Monster.com). There are only so many people with experience leading billion dollar companies and it’s pretty much public knowledge who they are. Right, the main requirement for leading a company with x turnover, seems to be having led a company with, say, 0.5x or higher turnover. And there’s only a small pool of such people. But, it simply doesn’t look like competition to me. If it were the case that the CEO of a multinational, who presided over a period where his company grew 5% while the market grew 25%, would struggle to find work, then there’d be some argument that inherent talent is a factor. But it seems to me that such a person would have no trouble getting a similar job with another multinational. ---
**Author:** ![Lightnin](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lightnin/32/180_2.png) [@Lightnin](https://boards.straightdope.com/u/Lightnin)\ **Post date:** [February 13, 2009, 12:56am UTC](https://boards.straightdope.com/t/ceo-and-other-top-executive-salaries-bonuses/485414/45 "2009-02-13T00:56:45Z")
> [@Algher](#): > > Can you give me some examples of CEOs who drove companies into the ground, and then got another top paying CEO job? Anecdotal, but the boss at a company I worked for years ago drove his company into the ground, got arrested for embezzlement, was fired for that before the company went under… … and is now, less than five years later, a CEO at a similar company. ---
**Author:** ![Sage\_Rat](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/sage_rat/32/399_2.png) [@Sage\_Rat](https://boards.straightdope.com/u/Sage_Rat)\ **Post date:** [February 13, 2009, 12:58am UTC](https://boards.straightdope.com/t/ceo-and-other-top-executive-salaries-bonuses/485414/46 "2009-02-13T00:58:41Z")
> [@lee](#): > > I don’t suppose you would care to support and explain this. Well let me rewrite it as such: Keynesian Economics 1. Suck money out of the economy. 2. Give it to smart people to reallocate. 3. ??? 4. Profit! Supply Side Economics 1. Suck money out of the economy. 2. Give it to smart people to reallocate. 3. ??? 4. Profit! It’s just a question of who you think fulfills step two, business people or congress. I don’t think there’s anything particularly debatable about these overviews. ---
**Author:** ![MichaelQReilly](https://avatars.discourse-cdn.com/v4/letter/m/df705f/32.png) [@MichaelQReilly](https://boards.straightdope.com/u/MichaelQReilly)\ **Post date:** [February 13, 2009, 1:26am UTC](https://boards.straightdope.com/t/ceo-and-other-top-executive-salaries-bonuses/485414/47 "2009-02-13T01:26:15Z")
> [@Algher](#): > > Can you give me some examples of CEOs who drove companies into the ground, and then got another top paying CEO job? [Bob Nardelli](http://en.wikipedia.org/wiki/Robert_Nardelli) ---
**Author:** ![Algher](https://avatars.discourse-cdn.com/v4/letter/a/3d9bf3/32.png) [@Algher](https://boards.straightdope.com/u/Algher)\ **Post date:** [February 13, 2009, 3:19am UTC](https://boards.straightdope.com/t/ceo-and-other-top-executive-salaries-bonuses/485414/48 "2009-02-13T03:19:55Z")
Several have posted Nardelli - far from a paragon of flame-out, however. Home Depot did not go into the ground. Plot their stock price against the S&P 500 for a perspective - not that bad. The wiki link even admits: > [@](#): > > Revenue increased from $40.57 billion in 2000 to $85.15 billion in 2005, while profit rose from $12.6 billion to $25.8 billion ---
**Author:** ![MichaelQReilly](https://avatars.discourse-cdn.com/v4/letter/m/df705f/32.png) [@MichaelQReilly](https://boards.straightdope.com/u/MichaelQReilly)\ **Post date:** [February 13, 2009, 3:11pm UTC](https://boards.straightdope.com/t/ceo-and-other-top-executive-salaries-bonuses/485414/49 "2009-02-13T15:11:53Z")
> [@Algher](#): > > Several have posted Nardelli - far from a paragon of flame-out, however. Home Depot did not go into the ground. Plot their stock price against the S&P 500 for a perspective - not that bad. The wiki link even admits: Yeah, but that short term stock price gain was acheived at the cost of the long term viability of Home Depot. During that time period Lowes poached a huge amount of Home Depot’s business due to HD’s deterioration of customer service, etc. at HD and it was not all that long ago, IIRC, that HD had to take pretty drastic action to avoid a complete collapse. See here: [http://firmsofendearment.typepad.com/srm/2006/06/bob\_nardeli\_hom.html](http://firmsofendearment.typepad.com/srm/2006/06/bob_nardeli_hom.html) ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [February 13, 2009, 3:46pm UTC](https://boards.straightdope.com/t/ceo-and-other-top-executive-salaries-bonuses/485414/50 "2009-02-13T15:46:18Z")
Actually a young man at my racketball club works for a compensation committee. He says what they essentially do is gather as much info about approx. the same level execs make in wages and perks. Then they compile a report . If the company wants to hire the exec.they will offer more than the people in his level make. There are no downward pressures. ---
**Author:** ![Algher](https://avatars.discourse-cdn.com/v4/letter/a/3d9bf3/32.png) [@Algher](https://boards.straightdope.com/u/Algher)\ **Post date:** [February 13, 2009, 4:43pm UTC](https://boards.straightdope.com/t/ceo-and-other-top-executive-salaries-bonuses/485414/51 "2009-02-13T16:43:25Z")
> [@gonzomax](#): > > Actually a young man at my racketball club works for a compensation committee. He says what they essentially do is gather as much info about approx. the same level execs make in wages and perks. Then they compile a report . If the company wants to hire the exec.they will offer more than the people in his level make. There are no downward pressures. Funny, I have never hired someone away from another firm for less than they were making either! ---
**Author:** ![Algher](https://avatars.discourse-cdn.com/v4/letter/a/3d9bf3/32.png) [@Algher](https://boards.straightdope.com/u/Algher)\ **Post date:** [February 13, 2009, 4:48pm UTC](https://boards.straightdope.com/t/ceo-and-other-top-executive-salaries-bonuses/485414/52 "2009-02-13T16:48:46Z")
> [@MichaelQReilly](#): > > Yeah, but that short term stock price gain was acheived at the cost of the long term viability of Home Depot. During that time period Lowes poached a huge amount of Home Depot’s business due to HD’s deterioration of customer service, etc. at HD and it was not all that long ago, IIRC, that HD had to take pretty drastic action to avoid a complete collapse. > > See here: [http://firmsofendearment.typepad.com/srm/2006/06/bob\_nardeli\_hom.html](http://firmsofendearment.typepad.com/srm/2006/06/bob_nardeli_hom.html) Good point. Nardelli appears to be the exception that proves the rule. I do consider him to be a separate class from the CEOs of the banks that no longer effectively exist, however. What will be intersesting to watch is what happens to those i-bankers. Some of them have a deep enough rolodex that they might be back on top in a few years selling the latest mathematical bundled finance product. ---
**Author:** ![hdc\_bst](https://avatars.discourse-cdn.com/v4/letter/h/9f8e36/32.png) [@hdc\_bst](https://boards.straightdope.com/u/hdc_bst)\ **Post date:** [February 13, 2009, 5:18pm UTC](https://boards.straightdope.com/t/ceo-and-other-top-executive-salaries-bonuses/485414/53 "2009-02-13T17:18:06Z")
> [@Algher](#): > > Funny, I have never hired someone away from another firm for less than they were making either! Algher, I’ve appreciated reading your perspective in this thread. It’s easy to buy into the view (unfounded it seems) that CEOs are looting the world through cronyism. Could you provide a bit more response to outline some downward pressures on CEO compensation? In a system where more than 50% of corporations try to provide their CEO with greater than median compensation that there is a strong feedback effect with positive gain. What can counter this (I’m assuming that everyone agrees something should counter this)? I can think of a few things… 1. Get rid of the deadwood, and hire a new CEO from a smaller company for more than they were previously earning, but less than the CEO you let go. 2. Hire someone with a compensation package that _can_ pay more than they currently earn, but only when the company performs well. Any thoughts on these? I think no. 2 is a good method, but to be most effective it needs to be nearly universally adopted. ---
**Author:** ![Mijin](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mijin/32/9369_2.png) [@Mijin](https://boards.straightdope.com/u/Mijin)\ **Post date:** [February 13, 2009, 5:48pm UTC](https://boards.straightdope.com/t/ceo-and-other-top-executive-salaries-bonuses/485414/54 "2009-02-13T17:48:39Z")
> [@hdc\_bst](#): > > 1. Hire someone with a compensation package that _can_ pay more than they currently earn, but only when the company performs well. > > Any thoughts on these? I think no. 2 is a good method, but to be most effective it needs to be nearly universally adopted. Depends on how you define “performs well”. Most markets are growing as a long-term trend, in fact growth is almost a necessity for the markets to function at all. So if “share price rising” is the measure of success, then I don’t think the rapid growth of CEO pay will change much. ---
**Author:** ![Algher](https://avatars.discourse-cdn.com/v4/letter/a/3d9bf3/32.png) [@Algher](https://boards.straightdope.com/u/Algher)\ **Post date:** [February 13, 2009, 5:53pm UTC](https://boards.straightdope.com/t/ceo-and-other-top-executive-salaries-bonuses/485414/55 "2009-02-13T17:53:59Z")
> [@hdc\_bst](#): > > Algher, I’ve appreciated reading your perspective in this thread. It’s easy to buy into the view (unfounded it seems) that CEOs are looting the world through cronyism. > > Could you provide a bit more response to outline some downward pressures on CEO compensation? In a system where more than 50% of corporations try to provide their CEO with greater than median compensation that there is a strong feedback effect with positive gain. What can counter this (I’m assuming that everyone agrees something should counter this)? > > I can think of a few things… > > 1. Get rid of the deadwood, and hire a new CEO from a smaller company for more than they were previously earning, but less than the CEO you let go. > > 2. Hire someone with a compensation package that _can_ pay more than they currently earn, but only when the company performs well. > > Any thoughts on these? I think no. 2 is a good method, but to be most effective it needs to be nearly universally adopted. #2 is the best bet (and is what I enjoyed the most when I did this work). Salary is a distraction, and nothing more. Pay the Obama approved $500k. Bonus: Make it based on achievement of quantifiable annual goals. LTIP: 3-4 year rolling plan. Let’s assume one of the auto companies hired me. First we would have a deep dive into what really matters at the Auto firms. I would also want to run an EVA analysis on each division, going as deep as possible (Saturn, light trucks, sports cars - however they divide up their businesses). Lets assume we came up with the following key goals: 1. Market Share - this is possibly more important than actual growth, since it reflects competitive pressures and not just what is going on in the economy. 2. Quality measures. Assume that poor quality has serious warranty impacts, so a measure based on quality. 3. Revenue growth. Even though we are already tracking market share, let’s grab this as well. 4. Profitability. Some sort of a profit matrix must be maintained as well. Off of this I might devise a formula that pays out a number of restricted shares of stock upon achievement of these goals. So if we pick up 2% more market share while maintaining quality, then you get X shares for every y million in revenue, adjusted based on profitability. This way key measures are used, the payout is in restricted stock so that the CEO is still tied to the company’s overall performance. Now - where would I target the pay? Might go for a total comp package that pays at the 40th percentile for median performance (a punishment effectively), but then allows 75th percential pay for 60th percentile performance. ---
**Author:** ![Algher](https://avatars.discourse-cdn.com/v4/letter/a/3d9bf3/32.png) [@Algher](https://boards.straightdope.com/u/Algher)\ **Post date:** [February 13, 2009, 5:56pm UTC](https://boards.straightdope.com/t/ceo-and-other-top-executive-salaries-bonuses/485414/56 "2009-02-13T17:56:33Z")
> [@Mijin](#): > > Depends on how you define “performs well”. Most markets are growing as a long-term trend, in fact growth is almost a necessity for the markets to function at all. > > So if “share price rising” is the measure of success, then I don’t think the rapid growth of CEO pay will change much. This is where I like, at the simplest, premium priced options if you just stick to those. If you are trading at $20, then your options are priced in traunches of $20, $25, and a $30 for example. The CEO now has an incentive to get the stock price up - and is not rewarded for just tracking the market. ---
**Author:** ![hdc\_bst](https://avatars.discourse-cdn.com/v4/letter/h/9f8e36/32.png) [@hdc\_bst](https://boards.straightdope.com/u/hdc_bst)\ **Post date:** [February 13, 2009, 6:11pm UTC](https://boards.straightdope.com/t/ceo-and-other-top-executive-salaries-bonuses/485414/57 "2009-02-13T18:11:29Z")
> [@Algher](#): > > #2 is the best bet (and is what I enjoyed the most when I did this work). What percentage of CEOs (choose any group you think you can make a judgement about - a particular industry, DJIA, S&P500, whatever) do you think have compensation plans in the number 2 model? ---
**Author:** ![Algher](https://avatars.discourse-cdn.com/v4/letter/a/3d9bf3/32.png) [@Algher](https://boards.straightdope.com/u/Algher)\ **Post date:** [February 13, 2009, 6:19pm UTC](https://boards.straightdope.com/t/ceo-and-other-top-executive-salaries-bonuses/485414/58 "2009-02-13T18:19:04Z")
> [@hdc\_bst](#): > > What percentage of CEOs (choose any group you think you can make a judgement about - a particular industry, DJIA, S&P500, whatever) do you think have compensation plans in the number 2 model? When I was writing them only around a third went to that level sadly. [Previous page](https://boards.straightdope.com/t/ceo-and-other-top-executive-salaries-bonuses/485414.md?page=2)