# What's the cure for runaway executive compensation? **URL:** \ **Category:** Great Debates\ **Created:** [September 8, 2009, 3:46pm UTC](https://boards.straightdope.com/t/whats-the-cure-for-runaway-executive-compensation/509293 "2009-09-08T15:46:51Z")\ **Posts on this page:** 20\ **Page:** 5
**Author:** ![Kearsen](https://avatars.discourse-cdn.com/v4/letter/k/82dd89/32.png) [@Kearsen](https://boards.straightdope.com/u/Kearsen)\ **Post date:** [September 18, 2009, 1:58pm UTC](https://boards.straightdope.com/t/whats-the-cure-for-runaway-executive-compensation/509293/81 "2009-09-18T13:58:29Z")
> [@Little\_Nemo](#): > > Are you aware that government is a service not a business? You don’t shut down a police department or a school or a library because they didn’t make a profit. Who cares about making a profit. What about being efficient? Most governmental agencies are NOT efficient, which is why you see more and more people propose to run them like a ‘for profit’ business. It sounds like you are against accountability. The agencies need to be accountable for something. You know where the money goes for agencies under the budget? You’ll never guess, they go out and spend any and all monies under the budget (EVEN WHEN THEY DON’T NEED IT) so that their budget doesn’t decrease the next year. ---
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [September 18, 2009, 2:04pm UTC](https://boards.straightdope.com/t/whats-the-cure-for-runaway-executive-compensation/509293/82 "2009-09-18T14:04:42Z")
> [@](#): > > Except that the other people always have the ability to fire them, and if they pay themselves too much, they will go broke or they will price their products out of the market. So there are checks and balances in place. Congressmen could vote to pay themselves a million dollars a year. It’s an excessive amount but the United States wouldn’t go broke over the half billion dollar total. The problem with excessive salaries is the actual financial burden. For most businesses and governments, a few million dollars is a minor expense. But it’s a symptom of a larger problem: the divorce between your personal well being and the well being of the organization you represent. People develop the mindset that the organization exists for their benefit rather than they are working for the organization’s benefit. ---
**Author:** ![Kearsen](https://avatars.discourse-cdn.com/v4/letter/k/82dd89/32.png) [@Kearsen](https://boards.straightdope.com/u/Kearsen)\ **Post date:** [September 18, 2009, 3:51pm UTC](https://boards.straightdope.com/t/whats-the-cure-for-runaway-executive-compensation/509293/83 "2009-09-18T15:51:09Z")
> [@Little\_Nemo](#): > > Congressmen could vote to pay themselves a million dollars a year. It’s an excessive amount but the United States wouldn’t go broke over the half billion dollar total. > > The problem with excessive salaries is the actual financial burden. For most businesses and governments, a few million dollars is a minor expense. But it’s a symptom of a larger problem: the divorce between your personal well being and the well being of the organization you represent. People develop the mindset that the organization exists for their benefit rather than they are working for the organization’s benefit. Until they get fired. Actually, I have no problem AT ALL with a salary. What I find horrendous is the compensation they get for leaving but hey that is why you ‘negotiate’ contracts in the first place. They want to put and end to that? They need to learn some negotiation skills and stop overpaying for failure.. ---
**Author:** ![whorfin](https://avatars.discourse-cdn.com/v4/letter/w/6f9a4e/32.png) [@whorfin](https://boards.straightdope.com/u/whorfin)\ **Post date:** [September 18, 2009, 4:14pm UTC](https://boards.straightdope.com/t/whats-the-cure-for-runaway-executive-compensation/509293/84 "2009-09-18T16:14:38Z")
> [@Kearsen](#): > > Until they get fired. > > Actually, I have no problem AT ALL with a salary. What I find horrendous is the compensation they get for leaving but hey that is why you ‘negotiate’ contracts in the first place. > They want to put and end to that? They need to learn some negotiation skills and stop overpaying for failure.. There are, however, some reasonable rationales for the compensation for leaving. I’m not saying I like it, but there are reasons. First of all, what people often point to as a bonus for “leaving” is actually a payout of guaranteed compensation, or a buy-out of their employment contract, or stock options–it’s not technically salary for “leaving,” as much as it’s money that the company promised to pay the CEO (often to convince them to take the job), and are still obligated to pay whether the CEO works or not. Secondly, as you note, this stuff is negotiated. Why do CEOs want to make sure they get paid whether the company likes them or not? CEOs have pretty strong incentives to not only want high pay, but guaranteed pay. First, CEOs are often hired from well-paid jobs (say, CEO of another company). So they’re going to (reasonably) not want to take a salary cut. Further, CEOs are often taking a risk in moving to a new company–less job security (since they’ll be less established with their new company)–and so they’re going to want to be compensated for taking that risk–which includes being sure they are actually paid the compensation they negotiated. Second, even if you’re a good CEO, being associated with a failing company can ruin your career. That’s another risk they quite reasonably want to be compensated for (by ensuring they get paid enough, and that the compensation is guaranteed-so that they will get paid)— companies in trouble are exactly where strong leadership is needed–someone who can turn them around. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [September 19, 2009, 5:03am UTC](https://boards.straightdope.com/t/whats-the-cure-for-runaway-executive-compensation/509293/85 "2009-09-19T05:03:45Z")
It is cute that people think execs earn the money they make, unrealistic but cute. They go into a company and start cutting jobs. That means the bottom line will look good next year. Then they cut divisions and even more money is being made. The company is presented with great books and thinks the exec is a genius. But the work is not being done, the product is not being improved and the maintenance is going down. But Wall Street praises him and every body wants him. He goes off to a new company, and wash ,rinse repeat. The first place is now a smaller, weaker company that competes worse. The money execs make can be thought of as jobs. he gets paid with thousands of jobs that he got rid of. The company makes out and can afford to give him much of the money saved by job elimination. Often they move the jobs off shore. that makes them look good too. America suffers because we lose jobs, purchasing power and actual work not being done here. It can be thought of as anti-American and unpatriotic. But they are now international corporations. They owe loyalty to nobody and no land. They will exploit Americans as well as people from India and China and any 3rd world country that they can. Banking execs merely brought the world economy to its knees. For that they got rich . Then instead of being arrested, we now allow them to start the same crap all over again. The bankers are selling the same crap they did before. They have acquired more banks and have become much bigger and far too big to fail. we are suckers. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [September 19, 2009, 5:05am UTC](https://boards.straightdope.com/t/whats-the-cure-for-runaway-executive-compensation/509293/86 "2009-09-19T05:05:16Z")
The cure. mobs with torches and pitchforks hunting them down like the dogs they are. ---
**Author:** ![Oakminster](https://avatars.discourse-cdn.com/v4/letter/o/77aa72/32.png) [@Oakminster](https://boards.straightdope.com/u/Oakminster)\ **Post date:** [September 19, 2009, 5:24am UTC](https://boards.straightdope.com/t/whats-the-cure-for-runaway-executive-compensation/509293/87 "2009-09-19T05:24:36Z")
> [@gonzomax](#): > > The cure. mobs with torches and pitchforks hunting them down like the dogs they are. Better “cure”: acquire the skills to get the top spot for yourself, and do things the way you think they should be done. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [September 19, 2009, 4:03pm UTC](https://boards.straightdope.com/t/whats-the-cure-for-runaway-executive-compensation/509293/88 "2009-09-19T16:03:01Z")
> [@Ruminator](#): > > Yep, the “powerless” board directors fired Carly Fiorina as CEO of Hewlett-Packard. Another “powerless” board of directors fired Gil Amelio as CEO of Apple. And Michael Eisner former CEO actually left Disney totally on his own. He just made it appear as if the Disney board fired him because being fired is more newsworthy than just resigning quietly. > > Yep, board of directors powers are all an illusion. :dubious: Oh ok. Because it has happened does that mean it is a normal procedure. It is corporate infighting. It is not on principle. They simply hired another guy for more money or equal. they have not altered the corporate structure whatsoever. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [September 19, 2009, 4:51pm UTC](https://boards.straightdope.com/t/whats-the-cure-for-runaway-executive-compensation/509293/89 "2009-09-19T16:51:13Z")
Eisner is a great example. Eisner hired Orvittz as president. Orvitz was terrible and he was broomed after 14 months. His severance package was a mere 38 mill in cash and about 100 mill in stocks. After tha,t the stockholder revolt required Roy Disney to use all his power to narrowly oust Eisner,who walked away with a ton of money. How does that prove they curbed runaway exec compensation. It simply proves corporations are executive candy stores. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [September 19, 2009, 5:00pm UTC](https://boards.straightdope.com/t/whats-the-cure-for-runaway-executive-compensation/509293/90 "2009-09-19T17:00:32Z")
Fiorina was listed as one of the worst 20 C.E.O.s of all time. She forced a merger with Compaq over the objections of the board and stockholders. They paid her 20 mill in cash to go away. ---
**Author:** ![Ruminator](https://avatars.discourse-cdn.com/v4/letter/r/b9bd4f/32.png) [@Ruminator](https://boards.straightdope.com/u/Ruminator)\ **Post date:** [September 19, 2009, 6:14pm UTC](https://boards.straightdope.com/t/whats-the-cure-for-runaway-executive-compensation/509293/91 "2009-09-19T18:14:41Z")
> [@gonzomax](#): > > How does that prove they curbed runaway exec compensation. It simply proves corporations are executive candy stores. I wasn’t responding to the issue of “runaway compensation.” I was responding specifically to your claim that corporate boards are “powerless” which is absolutely false. Please re-read your claim for context. > [@gonzomax](#): > > She forced a merger with Compaq over the objections of the board and stockholders. The stockholders (the owners) voted and ultimately, a majority approved the deal. Maybe it was a bad deal but enough stockholders agreed with Fiorina at the time to do it. For that bad decision, the owners also suffered by way of lost equity. That’s the ups and downs of publicly listed companies. Sometimes, the owners (stockholders) are just as dumb or dumber than the CEOs. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [September 19, 2009, 6:22pm UTC](https://boards.straightdope.com/t/whats-the-cure-for-runaway-executive-compensation/509293/92 "2009-09-19T18:22:18Z")
> [@Ruminator](#): > > I wasn’t responding to the issue of “runaway compensation.” I was responding specifically to your claim that corporate boards are “powerless” which is absolutely false. Please re-read your claim for context. > > The stockholders (the owners) voted and ultimately, a majority approved the deal. Maybe it was a bad deal but enough stockholders agreed with Fiorina at the time to do it. For that bad decision, the owners also suffered by way of lost equity. That’s the ups and downs of publicly listed companies. Sometimes, the owners (stockholders) are just as dumb or dumber than the CEOs. Note .in both cases it took a huge stockholder to topple them. In the first case Roy Disney with a pile of stock was able to put a group together. In the second it took Hewitt to do the same. These are not examples of the effects of stockholders exercising their power, but rich and powerful stockholders staging a coup. ---
**Author:** ![Honesty](https://avatars.discourse-cdn.com/v4/letter/h/f04885/32.png) [@Honesty](https://boards.straightdope.com/u/Honesty)\ **Post date:** [September 19, 2009, 8:29pm UTC](https://boards.straightdope.com/t/whats-the-cure-for-runaway-executive-compensation/509293/93 "2009-09-19T20:29:09Z")
> [@Ruminator](#): > > Many of the pharmaceutical drugs that have been created cannot be designed by a backyard herbalist chopping and mixing plants. > > A garage shop mechanic cannot manufacture a jumbo jet that can fly 400 people 6000 miles across the ocean. > > Big and complex products require a large pool of investors and an elaborate management structure to execute. > > Corporations create shit products but a lot of them produce items of which humanity considers “essential.” > > Can the government create institutions to create products?! Doesn’t seem like it because even when they tackle a big honkin project like the Hoover Dam, NASA Space Shuttle, or air craft carrier, they sub the contracts out to CORPORATIONS to get the job done! Wrong, wrong, wrong! It is the government that produces the products and the corporations that benefit from it. You’re correct that corporations can market scientific innovation, but don’t be naive to think that its due to their high-quality R&D departments. Let’s use the pharmaceutical industry. Here’s a story about Taxol: Taxol is a drug that selectively causes breast cancer cells to undergo cell cycle arrest and apoptosis. **It’s from a tree,** no joke. Extraction of Taxol was reported in The Journal of the American Chemical Society in 1971 and was funded by the National Cancer Institute, National Institutes of Health, and Duke University. The \*in vitro _activity of Taxol was published in 1979 funded by USPHS. \* In vivo_ activity in taxol was published in a sequence of over 80 papers between 1981 - 1984 - nearly all of these funded by U.S or European governments. Bristol-Meyer Squibb filed a patent in 1992 followed quickly with published human studies in 1993. The FDA approved Taxol for the treatment of breast cancer in 1999. I could go on and on: AZT, Prozac, and so many others have a similar story. Corporations piggyback off government-funded ingenuity and proft enormously from it. What peeves me is that despite these innovations being tax-payer subsdized, we Americans pay \*more \* for the drugs discovered in this country than people in Europe or China. It’s madness. If I were God-King of America, I’d enact a national pharmaceutical company. Now THAT would bring enough revenue for the construction of the Starship Enterprise. - Honesty ---
**Author:** ![FoieGrasIsEvil](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/foiegrasisevil/32/16638_2.png) [@FoieGrasIsEvil](https://boards.straightdope.com/u/FoieGrasIsEvil)\ **Post date:** [September 19, 2009, 8:41pm UTC](https://boards.straightdope.com/t/whats-the-cure-for-runaway-executive-compensation/509293/94 "2009-09-19T20:41:36Z")
> [@Oakminster](#): > > They have access to the same information any other investor has. If they’re too lazy or otherwise can’t be bothered to vote their shares in an informed matter, the fault is theirs. > > But really, that’s the fatal flaw of liberalism. Liberals don’t want to produce anything, or take responsibility for their own well being. They want to take from the haves and give to the have nots. The liberal mantra is “Success must be punished!”. Then why are there many, many rich liberals? If they really felt that way, they wouldn’t accumulate that much personal wealth…would they? Oh, right, it’s only for _everyone else_, but not for them, the elites. ---
**Author:** ![whorfin](https://avatars.discourse-cdn.com/v4/letter/w/6f9a4e/32.png) [@whorfin](https://boards.straightdope.com/u/whorfin)\ **Post date:** [September 20, 2009, 12:35am UTC](https://boards.straightdope.com/t/whats-the-cure-for-runaway-executive-compensation/509293/95 "2009-09-20T00:35:36Z")
> [@gonzomax](#): > > Note .in both cases it took a huge stockholder to topple them. In the first case Roy Disney with a pile of stock was able to put a group together. In the second it took Hewitt to do the same. These are not examples of the effects of stockholders exercising their power, but rich and powerful stockholders staging a coup. Huge stockholders are still stockholders, and owners of the corporation. There’s no inherent problem with owning a lot of stock–as you seem to argue. In fact, with a big company, you’d expect any such change to be driven by major stockholders. One reason is just scale-- Yahoo finance tells me that as of today, disney has a market capitalization of about 52 Billion dollars. At $28/share, that’s about 1.8 billion shares. Do you seriously think you can get a majority of the stockholder vote without having a major (i.e. rich) stockholder on your side (or, realistically, several?). Further, major stockholders are the ones with the most to gain/lose from a new CEO. They’re also the ones with the time and energy to put into figuring out if management is OK, or who to hire–an ordinary investor, who owns (say) $1,000 of disney stock, just isn’t going to spend a lot of time and energy into figuring out who to hire as a CEO. Let’s put a number on it-- imagine a good CEO can change the value of a company by 50%. That means that our ordinary stockholder, if he really wants to be involved in finding a new CEO, will be willing to spend up to $500 on the search–that’s the amount he stands to gain or lose–his stock will be worth $1500 with a good CEO, or $500 with a bad CEO. That’s not enough money to even fly to LA for a weekend, let alone spend a week there trying to find a new CEO. So what will our ordinary investor do? He’ll sell disney and buy some other stock. That’ll cost him twenty bucks or so. (this describes a principle called the Wall Street Rule–Dissatisfied investors tend to sell their stock, and buy into a different company, rather than working to change governance–it’s just not worthwhile to do so in most cases). ---
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [September 20, 2009, 3:52am UTC](https://boards.straightdope.com/t/whats-the-cure-for-runaway-executive-compensation/509293/96 "2009-09-20T03:52:28Z")
> [@](#): > > Then why are there many, many rich liberals? If they really felt that way, they wouldn’t accumulate that much personal wealth…would they? > > Oh, right, it’s only for everyone else, but not for them, the elites. What a ridiculous straw man. Nobody is saying the problem is people getting rich. The problem is people paying themselves ridiculously excessive salaries. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [September 20, 2009, 4:13am UTC](https://boards.straightdope.com/t/whats-the-cure-for-runaway-executive-compensation/509293/97 "2009-09-20T04:13:34Z")
> [@Little\_Nemo](#): > > What a ridiculous straw man. Nobody is saying the problem is people getting rich. The problem is people paying themselves ridiculously excessive salaries. Paying themselves huge salaries and bonuses when the company is losing billions ,is the kicker. If someone wants to believe an exec all by himself can bring 50 % more sales, he is delusional. But why in that delusion does he not think a 50 % drop shouldn’t result in a huge drop in salary and zero bonus. J.K.Galbraith in the “New Industrial State” called execs ratifiers. They accumulate information from the workers about a problem. Then they make a decision. But all the data they accumulate will make it for him. All he does is OK the info he was given. The significance of CEOs is way over rated, both by themselves and so many little people who view them with awe. They are employees of the corporation, and are no big deal. ---
**Author:** ![Oakminster](https://avatars.discourse-cdn.com/v4/letter/o/77aa72/32.png) [@Oakminster](https://boards.straightdope.com/u/Oakminster)\ **Post date:** [September 20, 2009, 4:42am UTC](https://boards.straightdope.com/t/whats-the-cure-for-runaway-executive-compensation/509293/98 "2009-09-20T04:42:44Z")
> [@gonzomax](#): > > They are employees of the corporation, and are no big deal. You really think Joe the Plumber could run Microsoft? ---
**Author:** ![Saint\_Cad](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/saint_cad/32/18907_2.png) [@Saint\_Cad](https://boards.straightdope.com/u/Saint_Cad)\ **Post date:** [September 20, 2009, 4:59am UTC](https://boards.straightdope.com/t/whats-the-cure-for-runaway-executive-compensation/509293/99 "2009-09-20T04:59:46Z")
> [@gonzomax](#): > > The reason the horrible left was up in arms when the financial pros got huge bonuses and salaries was because the company was losing billions of dollars. Then when we bailed them out they took the bonuses from tax payer money. How wrong can they get before a right winger will say thats enough. When you are in charge of a profitable company and it loses a ton of money, you should have a drastic pay cut or get your ass fired. The fact that they still got bonuses and kept their salaries, is telling about how much they have set up the system for their benefit. The employees and stockholders get hosed. The execs win. How about making a CEO’s salary a percentage of the profit? No profit, no money. ---
**Author:** ![FoieGrasIsEvil](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/foiegrasisevil/32/16638_2.png) [@FoieGrasIsEvil](https://boards.straightdope.com/u/FoieGrasIsEvil)\ **Post date:** [September 20, 2009, 1:28pm UTC](https://boards.straightdope.com/t/whats-the-cure-for-runaway-executive-compensation/509293/100 "2009-09-20T13:28:35Z")
> [@Little\_Nemo](#): > > What a ridiculous straw man. Nobody is saying the problem is people getting rich. The problem is people paying themselves ridiculously excessive salaries. I was replying (somewhat tounge-in-cheek) to this statement by **Oakminster** (which may also have been tongue-in-cheek): _“But really, that’s the fatal flaw of liberalism. Liberals don’t want to produce anything, or take responsibility for their own well being. They want to take from the haves and give to the have nots. The liberal mantra is “Success must be punished!”.”_ [Previous page](https://boards.straightdope.com/t/whats-the-cure-for-runaway-executive-compensation/509293.md?page=4)