So they’re miserably playing Nintendo?
A miserable person may nonetheless derive some enjoyment from certain forms of entertainment. Having a miserable life doesn’t mean at every instant your emotional state is completely miserable.
Anyway, all this is drawing us away from the OP anyway.
In my view, executive pay has been mostly inflated through non-market forces.
An argument often given for the increases in executive pay is that it is a job that few can do. However, it seems to me, very few people get the opportunity to try.
And those that do get to try, are set for life. If you’re a CEO of a massive multinational company, you can run it into the ground and still be offered lucrative jobs at other multinationals.
Sage Rat, are you aware that even kids who are actually starving to death still play with toys sometimes?
Can you give me some examples of CEOs who drove companies into the ground, and then got another top paying CEO job?
George W. Bush?
I kid, I kid.
Dopers - PLEASE learn some basic terms if you are going to bitch and moan:
Salary - FIXED PAY. Arrives with every paycheck. Rarely above $1 million due to loss of deduction. Do NOT call all pay Salary - that is wrong. Period. It makes you look stupid.
Variable Pay:
Annual Bonus - based on achievement of tactical, annual goals.
LTIP (Long Term Incentive Plan) - Typically a 3-4 year bonus plan that pays based on a achievement of strategic goals of the firm.
Stock - Options or Restricted, used to get the CEO to care about shareholder returns.
When we complain about the 400x, 40x, or whatever at most firms (Investment banks being the exeception) - it is due to the stock options and restricted stock grants - NOT THE SALARY. It happens when a CEO is hired, and is then given tens of thousands of options with a 5 year vest and a 10 year life. The exercise of those options is what triggers MOST of the “Can you believe how much CEO X made this year?” articles. RARELY do those articles mention WHEN the CEO was granted those options - instead they just count the dollars declared in the year of exercise.
This is a joke, right?
I don’t suppose you would care to support and explain this.
You are talking about the top 1% of CEOs who run the nations largest businesses. And you are basing your opinions on the handfull of CEOs who run banks and other financial instituions. There are thousands and thousands of small companys run by CEOs don’t bring in millions of dollars.
You are acting as if most CEOs are born into their roles or something. Unless you start your own company, you generally have to work your way up to being a CEO. You become a manager, then a director, then a vice president and so on up until you run the whole company. At each step their are less and less slots so the competition gets more intense. No one hires a 28 year old MBA grad to run their multi million dollar company. You enter a management training program or go work at a management consulting firm or investment bank for a couple years with hundreds of other MBAs.
How much should they get paid? The CEO of my company makes $6 million in salary (or about 50x my mid level managers salary). The market cap for the company is $21 billion. That’s not even half a percent of the total value of the company. if you split his salary among the 20,000 lowest paid employees, they would each get a check for $300. Sure I would like to make more money, but the whole company can’t have million dollar salaries. He also has a lot more responsibility than I do.
Can you speak to the notion that CEO compensation is inflated by old boy cronyism? I notice that you were a consultant which I presume means that you were hired various boards to come up with a number. Did those boards do things that inflated compensation beyond your recommendations?
Thanks,
Rob
I never saw old-boy cronyism. The meetings WERE a collection of grumpy white men, with a few exceptions.
I DID sit in a couple of meetings where the CEO came in and barked, “Johnson over at Company X got 20k shares and I want the f***ing same deal!” That was the biggest push for more pay - what their so-called peers were getting. This was made harder by the new proxy rules (those rules made my job easier, and also got us a ton more business).
The plans I wrote always centered around performance, and we calculated the percent of incremental shareholder value the CEO was getting in his total compensation package. For one client we looked at that percent for all of his peers, then wrote a plan that would deliver the equivalent to him if he were to beat his peers’ returns. That plan is one of the ones I am proud to have written.
Sometimes we just determined a fixed number of shares the CEO should get annually in the form of stock options, based on a valuation analysis and peer review. That was for firms that did not want to do much more than just grant options.
I tried to stay out of the perks game, though I had colleagues who managed that.
There was one firm that regularly grossed up the share grants to their CEO when he would scream. He would ask for options, then exercise and sell, then complain that he did not have enough shares. However, he built an amazing juggernaut of a firm and nobody would question the value he had returned over the years to the shareholders. He just annoyed me in how he negotiated. The Board would still hire us annually to take a look and run a peer review, and every time he was the top in the class - so you might as well reward the guy.
When I was still in the game, the tax rules were a little different. Options were “free.” However, if you put performance vesting restrictions on the options (as opposed to just vesting over time), you were hit with taxes. There was a tax DIS-incentive to making options vest on performance. That has, I believe, now changed. The best we could do was grant underwater options (Options with a higher strike price than the current trading price of the underlying stock). That would make it so that the execs got nothing until the firm was above that price. It reduced the ability to make money just because the firm was keeping up with the market.
Bob Nardelli. Almost killed Home Depot; was forced to resign and got his golden parachute. Now he’s at Chrysler…
I’ll have to hold my hand up on this one. I seem to remember a few anecdotes, but on Googling I can find no unambiguous examples, so scratch that argument.
However, I still say that once you’re a CEO you’re set for life – even failing CEOs seem to get huge severance pay. And I can certainly link good cites for that.
On edit: What jtgain said 
That’s not really the case though. Hundreds of people apply for many middle-management jobs. The bottom rung of the ladder is also quite competitive in the current financial environment.
On the other hand, how many people are even made aware that there is an opening at executive level?
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. There are only so many people with experience leading billion dollar companies and it’s pretty much public knowledge who they are. To a certain extent there is a bit of “who you know”. But a lot of it is simply who you know based on reputation. For example, if the board is looking to hire the CEO of a $500 million widget company, it’s easy enough to find other CEOs who worked in widgets or managed similar sized companies.
Actually, shouldn’t we have glut right now? There have been many consolidations over the recent years and so I would think there is a bunch of experienced people out there without a current position. Many banks bought other banks, and then thinned upper management. Not all of the acquisitions were due to the banks failing, so there should be some C-levels out there with experience at running fairly large companies that don’t have a position and yet have not demonstrated incompetence.
Which explains why Merrill gave 700 execs bonuses of over 1 million just before Citi was taking them over,.
MoneyWatch: Financial news, world finance and market news, your money, product recalls updated daily - CBS News 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.
http://www.newsobserver.com/front/story/1342447.html They get a lot more than just money. Perks up the wazoo for those who are condescending enough to run companies into the ground for us. It takes a lot of expertise to fail at such a grand scale.
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.