That’s fair. I probably assigned more meaning to that word than I should have.
I don’t mean to claim there’s nothing to be skeptical about, but that regular, rational market forces can result in extremely high pay for CEO’s. There’s no need for a cabal or good old boy network to explain high pay.
Is his pay rational? I looked up Ford, their current market cap is $15B, 8 years ago, it was more like $60B. Assuming his new leadership has the potential to bring Ford back only to half its prior value, that $20M upfront payment could turn into $15B of shareholder value.
There’s a lot of money at stake, and I don’t think the board is smart if they get cheap with the compensation and lose out on hiring the best person they can get.
The incremental value of a dollar declines as the amount of money you have increases. Thus, the $5K is relatively greater in value that the $5M in my example. Consider how much more the $5M is worth if it is $65K to $5.065M.
Making $65M is hardly just for the challenge. As for me, I’m at a salary level where I would turn down a bit more money (like $5K) if it would lose me the challenge I have now. But we’re not talking about the CEO’s motivation, but the boards. A CEO candidate who wants the $70M is not being immoral or anything - but if I were a director, I’d much rather hire someone into the company and not his own pockets. What’s to keep him from jumping ship with the job half finished?
Stockholders do revolt, every so often, but it takes Gretchen Morgenstern or a meltdown to do it. Usually they hear that the compensation committee paid only what it would take to get the best talent, and aren’t in on the negotiations.
A lot of companies have a part of your compensation at risk, depending on how the company did against goals. I’m for this system. CEOs should have more at risk, since they have more direct impact on the results. The guy who took over IBM deserved every penny of his bonuses. The problem is that the CEO doesn’t actually have pay at risk the way it goes at certain companies.
I like that idea. Since there is an obvious shortage of executive talent, as shown by compensation packages, it’s only logical that the government issue a large number, say 10,000, of H1B visas reserved for upper management. Outsource the bastards.
It’s all relative. To some making minimum wage, $5k is a huge amount of money. $5M only looks like a lot to you because you don’t make $100M/year.
Well, that’s fine. If you become a director you should act according to your beliefs. I guess it comes down to whether we’re talking about what we would do if we were on boards vs what we want the government to force everyone to do.
Of course they’re not in on the negotiations, nor can they be. My main point was that you can look at government action in two ways-- regulating the company, or regulating the information that consumers (investors) get. If all the investors are aware of what is being done, and they don’t revolt, then what business is it of the government to interfere? No one is being harmed.
I agree. But so what? If the investors are OK with that, what business is it of you to say it should be otherwise? Again, let’s be clear about what we personally object to, and what we think the government should mandate. I personally object to no-risk compensation packages for CEO and try to avoid investing in companies where I see that as a problem. But I can’t see any reason that it should be illegal.
And you have a perfect right to that opinion. But somebody else might disagree with you on that without being motivated by “a vindictive dislike of fat people”.
It’s not your personal opinion on the proper role of legislation that I’m calling silly; it’s your automatically attributing nefarious prejudiced motives to anybody who happens to disagree with that opinion.
Isn’t that exactly Voyager’s point? I.e., the more money you have, the less any given increment of money matters to you. Also known as the “declining marginal utility of wealth”.
Almost. Diminishing marginal utility applies to wealth with respect to happiness, which is why people are willing to trade off variable amounts of wealth for happiness-inducing things. But the marginal utility of the nth dollar and the n+1th dollar are the same.
Unfortunately, I have to agree. The only thing that will change behavior is to change incentives. Regulation occasionally works: companies either pay the cost of burdensome compliance or change their behavior. In this case, the cost of noncompliance seems pretty low.
Better to invest your money in funds that are not only “green” but who also require executive compensation to be within acceptable parameters. If paying execs less not only reduced operating expenses but also opened up more avenues for capital, behavior will change.
Certainly so, and I accept there are people who may want a salary cap for some reason unrelated to vindictive dislike of CEOs. Those people are abhorrent because they are arguing for a government to have way more power of the lives of its citizens and their private business than it should (this applies both to the matter of CEO compensation and the matter of overeating.)
That’s based on my experiences here at the SDMB.
My post was:
I was referencing primarily this message board. Within the confines of the SDMB most of the threads where I’ve seen people advocate a cap on maximum earnings the thread has been filled with rhetoric about how “abominable” and “immoral” it is for people to make a lot of money.
I could certainly be wrong, and was probably wrong to make the statement without qualification, I’m sure there’s a few people here on the SDMB who advocate a maximum wage who do not do it out of vindictive dislike of rich people, but I have trouble thinking of anyone off hand. Especially considering people typically would not admit such a thing if that was their motivation.
You are assuming what you need to prove. There is no reason to believe ex ante that capping CEO pay represents more government interference than should be permitted. Perhaps proceeds from your particular ideology. It is unnerving to hear you call people who do not subscribe to this “abhorrent”.
The government should have enough power over the lives of its people to create institutions that maximize social welfare with a minimum deadweight loss. There are plenty of ways to skin this cat regarding pretty much any institution we analyze. If capping CEO pay is the most efficient way, then so be it. Ideology is irrelevant.
Personally, I don’t think it is, but just like your opinion, it is neither here nor there.
There are Indian and Chinese companies with their own Indian and Chinese CEOs so I’m not sure what your point is. Are you asking why they don’t outsource CEO positions to third world countries?
I don’t see what the big deal is. No one gives a rat’s ass if Tom Cruise makes $67 million a movie or Tiger Woods makes $90 million smacking a golfball around. Is there something particular about corporate CEOs that they should have a cap on their salary? At least a CEO is running a company that creates jobs and produces products and services for people.
People associate CEOs with The Boss Man. If Jim Carrey makes $20 million, no one cares because he’s just some clown on screen. The CEO, on the other hand, is the guy who hires or fires you and who pays your salary (if indirectly). People resent it because it seems unfair having to work your ass off for a guy who brings in more in a year than they will make in 50 lifetimes.
By the way, Occidental Petroleum’s CEO took in $400 M last year, so I don’t know why you people are arguing over small change like Ivan Seidenberg’s $20 miillion.
I get upset about people like Bill Agee, who have a talent for waltzing in, getting everyone to drink the kool-aid, wrecking the company, grabbing a golden parachute, and leaving a mess for the next CEO.
“But I make a profit of three and a quarter cents an egg by selling them for four and a quarter cents an egg to the people in Malta I buy them from for seven cents an egg. Of course, I don’t make the profit. The syndicate makes the profit. And everybody has a share.” – Milo Minderbender
Not sure who you’re addressing but I was explicit in my opinion that large salaries for poor performance was not acceptable to stockholders. Tom Cruise and all the other sports/entertainers listed get paid to draw a crowd. If they didn’t they would be washing your windows.
I thought that was what I said. Also, if you look at post #15, you’ll see I’m against legal salary caps, so I’m not sure who you’re trying to convince.
The Times has a special section on CEO compensation today, and it looks like, from what I’ve read so far, is that the transparency is not being very transparent. The executive compensation experts can’t figure them out. So, I’m dubious about how much investors are actually being told. A few jets here, some free life insurance there, it all is a bit hard to add up.
Individual investors don’t have a lot of clout. Fund managers, who make millions also, are probably a lot less concerned with big CEO salaries, since saying they don’t deserve it might imply the managers don’t deserve it either.
Upper management and C-level executives don’t qualify as “labor”. Most tasks performed by labor are interchangeable with any similarly trained laborer. It doesn’t matter if they are American, Mexican or Indian.
To effectively run a multi-million/billion dollar company, you need experience running a business in that environment. You need to have the connections and professional network. You need to understand the government regulations and the various “unspoken” rules of conducting business.
Part of being a CEO is “branding”. Investors need to know the guy in charge knows what he’s doing. Whether he does or not, they at least want to see a track record of sucess.
If I was picking a CEO for an American company, I would probably pick one who knows the country and the way we do business over his non-union Mexican equivalent.
Personally, I find it unnerving that people trust in the government to minimize waste. The role of the government is to make sure that businesses all play by the same rules. It is not their place to decide how a business pays it’s executives just as long as they aren’t committing fraud.
While I am not suggesting it is the case, it is possible that CEO makes $30 million while his company loses $12 billion because without him at the helm the company would have lost $15 billion.
The case of Ford is high profile, but how typical is it. I know a lot of CEOs make what seem like obscene amounts of money, but they also are in charge of multi-billion dollar enterprises and they don’t all find themselves in the red to the tune of $12 billion, like Ford.
I think there are cases where the CEO pay IS obscene, an efficient market does not mean it is efficent in every transaction (Old economist joke, two free market economists are walking down the road. One says, 'There’s a twenty dollar bill on the ground." The other says, “No there isn’t.”) The question is there some flaw in the way CEO compentsation is determined that generally makes it inefficent. There have been some possibilities raised here, like the fact that board members form an old boys club.
I think there’s more evidence that you really don’t NEED these. Many entrepreneurs who don’t have any of these do a great job of running their companies. I’m not saying that you don’t need any experience. But I don’t think that what CEO’s are getting paid buys any MORE of these skills. In other words, CEO’s may be getting paid on the belief that they are one of the very few people who can do their job effectively, when in reality, there are many more that can do it just as well (or better).
I think that this is one of those ideas where if you repeat something enough, people will start to believe you. This is the very definition of market inefficiency…where there is a gross misvaluation of a certain asset ( a human asset, in this case). For one thing, you won’t find too many CEO’s who really have good track records. Show me a CEO who has turned around multiple companies. In reality, the most important decision that a CEO can make for his or her own career is to sign with the right company.
Me too. I’d make sure that I minimize how much he or she is paid, though. Just like I do with any other employee I hire.
To a certain extent, I agree. But to me, the current level of CEO compensation is a type of fraud. Specifically, I’m talking about the quid pro quo relationship between Board members at the expense of shareholders. And even still, we rely on the government to make macro-economic decisions for us in the case of bubbles, recessions, etc.
Name one person with whom you are willing to entrust a $15 billion corporation with worldwide assets and interests. A person you are going to give the keys to the company, to do with as he deems best.
Who do you choose, the guy who’s doing a great job running a $10 million dollar niche company, or the guy who’s doing a great job as a senior executive at another multi billion dollar international manufacturing company?
Make a mistake, and millions of people will lose money. Money for retirement, money for their kid’s college, money they entrusted to you, board member, to take care of. Make a mistake, and tens of thousands of people will lose their jobs.
Isn’t this hypothetical choice rather artificial? Do corporation boards really have only these two categories of applicants (the CEO of a small corporation vs. a senior exec of one of the top-150 largest corporations) to choose from when picking a new CEO?
The way you’ve set it up makes it look as though there’s simply no candidate who can realistically compete in terms of qualifications with $15-billion-multinational senior exec, because all the other applicants are chicken-feed small-business CEOs. But that’s not true. There are literally hundreds of US corporations in the billion-dollar-plus size range, and many of them have senior execs whose qualifications and experience resemble those of the priciest CEOs much more closely than their salaries do.
People complain about ridiculous pay for athletes all the time. It is a staple of the decline of our values threads and AM calling shows that we pay Terrance Owens as much as 750 school teachers.