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Do CEO's deserve their huge salaries and bonuses?

pierre0913pierre0913 Registered User Posts: 7,652 Senior Member
edited July 2010 in Parent Cafe
I got completely blasted on another thread for my opinion so I'm starting a new topic so I don't hijack that thread. I know some people here have kids who someday may get an MBA and go on to executive America. What's your opinion on this question?
Post edited by pierre0913 on

Replies to: Do CEO's deserve their huge salaries and bonuses?

  • blueiguanablueiguana Registered User Posts: 7,496 Senior Member
    It's not a matter of 'deserve', it's a matter of what the free market will support. If investors, shareholders, consumers, are not in favor, they can choose not to support them. This is a broad answer, but it was a broad question.
  • EnginoxEnginox Registered User Posts: 828 Member
    You are focusing on a very narrow slice of CEOs. There are thousands of companies of all types in the US and at many of these companies, especially the small ones, the CEO may earn way less than what a middle manager at, say, Goldman Sachs earns.

    From what I understand, a CEO's salary is set by the company's board of directors. The board takes a look at the salaries of CEOs in companies of similar size, similar market, etc. and offers the prospective CEO a similar, perhaps more attractive salary, comp. package, options, etc.

    Therefore, the CEO of Goldman Sachs probably earns along the same range the CEOs of other high-caliber investment houses earn. I would imagine that if we control for these high-earning outliers, the median salary for US CEOs is possibly around $1 million dollars.

    I think your question should be rephrased, do or did the CEOs of companies such as Goldman Sachs, Enron, Bearn Sterns, GMC, et al deserve such high salaries?
  • pierre0913pierre0913 Registered User Posts: 7,652 Senior Member
    well I saw a video yesterday of someone who is the CEO of a company called Cypress Semiconductors and I think he's earning a good bunch too.
  • ucsd_ucla_daducsd_ucla_dad Registered User Posts: 8,573 Senior Member
    The company thinks they're worth the compensation or they wouldn't offer it. They're not usually out to throw away money.

    You can scale this any way you want - should a medical doctor be paid more (i.e. 'worth more') than the person running the french fry machine at the fast food place? I'd say the answer is 'yes' because of supply and demand. The supply of doctors is limited because only so many people have the ability and inclination to go through med school and become qualified whereas almost everyone can become qualified on the fry machine given 5 minutes training.

    Does the top football player deserve the millions he gets? I'd say 'yes' because it's a business decision and again comes down to supply and demand - only a limited number of people can perform the way they do and the owner of the team believes that investment will reap rewards for the business.

    Should a company pay a CEO $50M per year? That's a lot of money but what if that CEO has a track record of being able to turn companies around or substantially increase its profitability? What if the $50M CEO is able to increase profitability by $500M per year? Was it worth it? I'd say 'yes'. Take a look at Apple. Was it worth it to pay Jobs whatever he was paid to return to the company to turn it around? Since the company was on a downward spiral and probably approaching bankruptcy and he turned it completely around I'd say 'yes'. Keep in mind that most people at this level are booted out fairly quickly if they don't perform as expected.
  • EnginoxEnginox Registered User Posts: 828 Member
    ^Carly Fiorina.
  • MiamiDAPMiamiDAP Registered User Posts: 16,184 Senior Member
    It does not matter who deserve what, it is determined on a market (as well as salaries of actors, athletes, TV / radio show people and the ones who work at McDonald and everybody in a middle). Economies that are based on centralized salary control as well as other centralized planning/control and hugely unsuccesful and some of them turning away from economic structures that results in very low standard of living for most citizens, except the ones in power, their ..... lickers and thieves.
  • dstarkdstark Registered User Posts: 34,241 Senior Member
    What free market? Is this a joke? Everybody sits on each others boards and agrees to pay each other too much.

    How did the shareholders do over the last 12 years? You know...the owners of the companies? How did the CEOs do?

    At one time..CEOs made 40 times the average workers salary. Now what is it? 300 times? And stock prices? And worker pay?
  • tonerangertoneranger Registered User Posts: 3,723 Senior Member
    Well, there are plenty of reports in the last few years that show that CEO pay, in MANY cases, is NOT linked to company performance. Pay of CEOs compared to the average worker in the company has skyrocketed in the last decade. And contracts for CEOs are also bloated with golden parachutes that pay out insane amounts of cash, even if the CEO is terminated for running the company into the ground. I think there's a place for reform here. Corporate governance is the place to start. We have boards making decisions on pay, influenced by executive compensation consultants who think "more is better." Lately "say on pay" proposals are gaining ground, giving shareholders a vote on pay. But the vote is just a thumbs up or down - and is usually not binding. But at least boards now know that someone is paying attention! There's a LOT of work to be done to set this in the right direction, in my humble opinion.
  • ucsd_ucla_daducsd_ucla_dad Registered User Posts: 8,573 Senior Member
    If a shareholder doesn't like the decisions a company is making in this regard they can divest themself of their investment in the company. If a company continues to truly overpay the CEO, i.e. paying a lot more money to the CEO than necessary to achieve their desired results, then the company will likely suffer and lose investors at the same time.

    It is a free market as well it should be. I don't buy into the idea that there's some massive conspiracy of board directors somehow protecting and overpaying incompetent CEOs regardless of their results.

    People can always speak with their pocketbook - if you think a company is overpaying their CEO then don't buy their products and don't invest in the company. If enough people did this the company will either see the error of their ways or go under (or the government will take over - ala Government Motors).

    Woops - did I end up in the politics spectrum?
  • dstarkdstark Registered User Posts: 34,241 Senior Member
    Most of the CEOs are overpaid...

    You would be stuck with Apple and not much else....

  • tonerangertoneranger Registered User Posts: 3,723 Senior Member
    There is a very weak relationship between company performance and CEO pay. In every study I've seen. Show me something that says different. Boards need to step up. There's too much management influence...I think we call this a "conflict of interest." We need truly independent boards. And I wouldn't trust most exec comp consultants as far as I could throw them. I know, I worked with a bunch of them.

    From a blog I can't link to: (per CC rules)

    Corporate performance and CEO pay are poorly correlated, according to executive compensation expert Graef Crystal.

    Crystal recently completed a study for Bloomberg News on the relationship between shareholder returns and CEO pay, and found that no matter how the data was sliced, the relationship was a poor one. In other words, the relationship between what shareholders earn on their investments in a company and and what CEO earns is not a very good one.

    By viewing the interactive graph at this link, one can see that the link between pay and stock performance is a tenuous one. The data is based on over 2009 data from 271 large public companies that have already reported their financial results and their executive compensation. 2009 was a very good year for the most stocks, but a generally poor one for most businesses, so we should expect some divergences
  • razorsharprazorsharp Registered User Posts: 6,161 Senior Member
    The difference between a good CEO and a bad one can be worth billions of dollars to innvestors. All you have to do is look at Ballmer at Microsoft to see the consequences of a bad CEO. If Ballmer was even the slightest bit competent Microsoft would be earning all the profits of Google and Apple just to mention a few companies that have beaten Ballmer.
  • ucsd_ucla_daducsd_ucla_dad Registered User Posts: 8,573 Senior Member
    I think almost all professional sports players are overpaid and I think most actors are overpaid as well as are a lot of movie producers. I think some writers are overpaid for their novels. I think speakers at college campuses who are paid $100K for a speech are overpaid unless there's a direct return on that investment to the college. I think a lot of university administrators are overpaid as are some professors.

    But that's me looking at it from a single perspective of me placing little value on a professional sports person but from a business perspective I understand it can be a good investment. Obviously people or someone in a position to make the decision decided that the investment was worth it. In some cases their decision pretty clearly was a sound one (in the case of some sports figures, actors, etc.) and in some cases it clearly wasn't (also in the case of some sports figures, actors, etc.). Unless there's somehow a direct return to the college as a result of paying Al Gore $100K to hawk his book no one can convince me that he was worth that investment.

    But who are any of us to make a global statement that CEOs are overpaid any more than anyone else? Why do any of you think you're in a position to know the level of compensation required in order to attract the particular talent deemed necessary to run a company (or be a key actor, or basketball player, etc.)? If a company is making poor decisions by hiring expensive CEOs who don't end up producing eventually they won't survive (unless bailed out by our government regardless of their performance).
  • dstarkdstark Registered User Posts: 34,241 Senior Member
    Can't see toneranger. Is that a personal blog or a business blog?
  • dstarkdstark Registered User Posts: 34,241 Senior Member
    Look at profits. Look at stock prices. Look at workers pay. Look at relative performance. Look at CEO pay.

    Is there a positive correlation?

    That is just a start.
This discussion has been closed.