The problem I have with this entire thread is that it isn’t based on any sort of rational argument. Will an executive salary cap will somehow provide a tangible benefit to employees, consumers or the economy in general? Or is this basically another case of “I don’t like that I make $50,000 a year while some CEOs make millions.”?
And does this cap only apply to CEOs of established companies who are hired by the board of directors? If I start my own company am I still subject to the salary cap?
From where I sit, it seems like people think the economy is one monolithic entity controlled by the government where all the jobs and businesses just sprang into being. If we just redistribute money from overpaid CEOs to the common working man who can’t balance a checkbook, everything will be fine.
Well, potentially it could definitely help the company and/or the workers and/or consumers if the boss takes home only, say, $2 million a year instead of $50 million. I mean, that extra $48 million would pay quite a few Christmas bonuses.
But I don’t think that’s really the issue here. I think the issue is that it’s commonly recognized that CEO salaries are not set in a competitive way (I mean, when Business Week is willing to say so, you know it must be pretty much an accepted fact), and that many badly-performing CEO’s are nonetheless getting a hell of a lot more compensation than they deserve, by any measure. This does not seem to be seriously in dispute.
And yet, it doesn’t seem possible for anything to be done about it. Executive salaries just go on swelling, irrespective of whether the executives are doing a decent job, and non-executive employees watch it happen while fretting about their mortgages and their medical bills and the cost of tuition and their next performance review.
You really don’t need to be a bitter, envious, wealth-hating Marxist to start feeling that this is kind of an unsatisfactory and frustrating situation. People are starting to talk about legally imposed salary caps because it’s seeming as though there’s no other way to fix the problem.
If you start your own company and keep it as a privately owned company, incorporated or not, you would not be subject to the salary cap; if your company makes billions of dollars profit every day, it is all yours, to do with as you please. If you dilute your ownership through the sale of stock, then you become subject to all the laws regulating corporations, including, maybe, the salary cap which I am close to agreeing was and is a stupid or at least an unreasonable idea. Maybe what we really need is some foolproof test of ethics; in too many cases now, ethics are soluble in cash.
That’s why I like my auction idea. If we want to know what CEOs are worth, force them to be on the open market. If we can cut the politics and salary caps out, we will see what CEOs are worth.
what you are asking for is some way of codifying the fiduciary responsibility of corporate board members in regards to the valuation of labor. Is there a qualified candidate that can do the job for a million less and still produce the same results?
There is a separate but related issue of stock valuation in relation to the actual value of the stock. Wages can be hidden by stock options and stock options can be manipulated to the benefit of stockholders.
They are on the open market. You can see every penny a CEO makes, along with a 5 year performance chart, in the proxy. You can even read about what their retirement package is if you so choose, along with the value of any perks.
FYI - I have done work as the client of the Exec team AND as as client of the Compensation Committee of the BOD (in response to an earlier aside by someone in this thread).
A large portion of research is done in college labs. Our tax dollars at work. The idea that a couple of chemists dream up a new idea is a joke. Can’t say it never happens but that is not modern pharm. Actually much is done in India and probably China now.
In a bit of boredom during the Giants/Eagles game…
Cecil Adams is the CEO of SDMB. The BOD, in hopes of getting him to increase the value, grants him 1,000 stock options. The current price is $1.00, as is the exercise price of Cecil’s shares. The vesting will be over the next 5 years, at 20% per year on each anniversary.
Right now, Cecil does not have a damned thing. His options have no value, and he does not even have the right to exercise his shares. However, FASB has decided that there must be SOME sort of an expense taken. We run a Black-Scholes analysis on SDMB and determine that the “cost” to SDMB for those shares is 40% of the exercise price, or $400.
So, do we look at Cecil’s pay rate in comparison to the FASB valuation of the shares at the time of grant? That will certainly give us AN answer.
Now, it is 5 years later and all of Cecil’s options can now be exercised. Under his stewardship, the SDMB has increased in market value by 10% per year. Shares are now trading at $1.61 per share. His 1,000 options can be exercised for a net gain before taxes of $610.51 (he has to pay the $1.00 remember).
Now, that $610.51 represents a payment from 5 years ago. It represents value accrued over 5 years. However, when the Chicago Reader prints an article on this, everyone just looks at the total gain in the year of exercise against his current salary. They IGNORE when the grant was made.
This was the case with Michael Eisner of Disney - he had a lot of options from when Disney was worth little, and when he finally exercised his options - Disney was trading MUCH higher than when he started his time as CEO.
Sorry. That is not the only thing required for an open market. As long as boards of directors (taken from a pool of CEOs and CEO wannabes) are left to muddle along with little or no oversight from absentee financing outfits, (the insurance companies and other financial investors that delegate the compensation review to small departments that are not, themsleves, held accountable for any decisions as long as they are not outside the parameters determined by comparable groups, (i.e., BODs comprising CEOS and wannabes not being held accountable by other investors’ compensation departments), only the final results are visible, not the actual mechanisms. As long as compensation committees and investment/compensation oversight departments operate out of the public eye, the market is a closed game in which the opponents and the refs are all playing on the same side.
(And, again, I am not calling for government interference at this point unless someone comes up with a specific regulation that would encourage better oversight by the companies and investors, themselves. I would prefer to see insurance companies and their fellow investors take a serious look at reforming the system that they already have the power but lack the will to correct. However, I think that the current system is pretty messed up and an appeal to its “openness” is mildly disingenuous.)
I am now prepared to abandon the idea of enforced CEO salary caps; I wish there were some sort of voluntary means of capping salaries. If it can be shown that a given CEO actually increased the value of of his company, perhaps his salary could be increased by some percentage of the improvement. I think money for bonuses should be set aside and held in trust for the CEO until he resigns or retires. I have no defense for that last idea. Anyway, I surrender.
Algher has shown me the error of my ways; he is the winner.
This whole financial bilking had a genesis back a few years ago. The Enron types opened the door. The first ,I read, was the Buffalo energy company. When the new management took over they broomed hundreds of workers. Of course they immediately showed great profits. The board saw the money they were making and declared them financial geniuses. The fact that the grid was falling apart did not matter. They could always bring in a private contractor to do the work. The bosses got huge raises and bonuses. By the time the damage was seen they were rich and gone. With such a great record .they moved up and did it again.
When they did it in Calif. ,they also declared a shortage and raised prices. They fleeced the citizens out of billions.
Just quit thinking we are dealing with businessmen. They are scam artists and thieves.
Yes, my mind was changed but only to the extent that I now believe a salary cap cannot be imposed by fiat or by law.
Perhaps I am calling, naively, for a return to honor and ethics among CEOs; unlikely, I admit. My cynicism says that honor diminishes with power and that ethics are soluble in cash—broadly speaking, of course; that brush doesn’t cover everyone. I was taught and still believe that the primary responsibility of a corporation was to make a profit for the shareholders. In practice, that responsibility seems to have morphed into making a profit for the CEO, even if the company is failing. I think we are teetering on the brink of a return of the robber barons; in some cases, I think we have fallen over that brink.
This fuzzy arguement only works when CEOs, board members or their families are not allowed to own stock themselves. Nothing like foxes voting themselves access to the hen-house.
Stock is how you get the CEO to have skin in the game that is aligned with the shareholders.
The only CEOs I have know with enough ownership to sway a BOD vote were founder CEOs.
There is a problem in the lack of participation by the larger investment houses (mutual funds, insurance companies, pension funds). However, there is also the concern that if those pension funds flex their muscles too much there could be other problems. For example, two of the largest pension funds are Cal STRS and CAl PRS - the State of California Teacher fund and the State of California Public Employees fund. If these two funds started exercising control, there would be a backlash regarding these public employees telling corporations what to do.
Warren Buffet, on the other hand, has no problem telling some corporations what to do when he buys in with Berkshire Hathaway.
Do we need to cap CEO pay? The people hurt the most in the latest implosion were stock holders. The result is likely that in the future large stock holders will pay closer attention to executive pay and what they are doing. I think stock holders would be a better judge of things than the government.
That’s right. Lou Pai had control of the books and could make it appear that the company was booming. Only he and a few others knew that the real situation was dire, so he cashed out his shares to the tune of around $300 million, paid an out-of-court settlement of $31.5 million, including $1.5 million in civil fines and $30 million in restitution, then went off to retire with his new stripper-wife. There’s your capitalist hero.