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<p>I think at that level, it’s not so much about what the money will buy. It’s about keeping score.</p>
<p>Not condoning a 354x ratio, but for accuracy’s sake, executives must file Forms 3 and 4 with the SEC regarding ownership of company stock. Not a perfect system (cliff percentages, and a 2 business day window), but insider transactions are regulated and a matter of public record. I follow the executive sales at my hubby’s Fortune 100 company. I always wonder if something is “up” when I see several senior professionals selling; so far no correlation in this one anecdotal case. Interesting idea for a research paper, perhaps: Stock price changes after insider sales.</p>
<p>Unless the CEO’s pay rate x their average worker’s pay is off by a decimal point (ie- 30 vs 300), I really don’t care about minor calculations (350 vs 325). It’s subjective by what is and isn’t included. 260 or whatever times their average worker’s pay is still pretty disgusting.</p>
<p>I agree it is disturbing in so many respects. When the economy was booming in the 60s, the ratio was much smaller. How do you explain that?</p>
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<p>Doubtful that something is “up” but more likely that it’s because most senior executive team members have very small windows of opportunity to sell or to exercise options.</p>
<p>The main reason is that CEO compensation has changed whereas workers have not, and it isn’t necessarily a good thing. 30 years ago or more, executive compensation was mostly in the form of pay and cash bonuses. If a company made profits and they met goals, they would get their targets.</p>
<p>In the past 30 years, the majority of CEO pay is not in pay or bonuses, it is in stock, originally options, now mostly restricted stock, and the amount skyrocketed with that. The argument was that this would give the CEO 'ownership" in the company and make them more responsible. The problem is the way the grants are given out, it often goes against the long term interests of the company. One of the biggest problems is that most of these grants are short term, so the CEO now has incentive to boost the stock price in the short term, rather than long term (it would be better incentive to run the company for the long term if he/she couldn’t touch them for years down the road, which they do with ordinary employee stock grants).</p>
<p>Among other things, boosting stock price doesn’t mean what some are claiming, profits, you see companies returning good profits that get hammered…why? Because stocks prices are based mostly on what stock analysts say, and most stock analysts are 26 year old snotnoses from business schools with degrees in finance who basically don’t know their butt from their head most of the time. I have seen stocks get hammered because they didn’t meet expectations, I have seen them get hammered for exceeding them.</p>
<p>Not only that, but stock analysts hate costs, so things like R and D, spending on employees and so forth is hateful to them. have a successful company and want the stock price to fly? Announce you are laying off 10,000 workers or sending the jobs to China, or announcing they cut costs by 5% by stopping spending on r and d, stock will fly. Once upon a time companies looked at profits as motivation and also at long term growth, now it is about pleasing stock analysts. </p>
<p>Part of the reason they went to this system and why they can be so generous is in how these are costed. As far as I know, they haven’t changed accounting standards, so when you give restricted stock grants they are not charged as an expense against the bottom line, the way cash bonuses and options are, yet they are for the sake of taxes deductible, so it is a win-win for them.</p>
<p>The worst part of using stock is what was seen in the financial crisis, the reason that those financial companies took those kind of risks on CDS’s and CDO’s was they could boost their stock price through the roof in the bubble they were creating, they took ridiculous risks basically peddling garbage and were getting fat and rich off of the stock, and sold out long before it crashed. In effect, basing their compensation on short term stock gains does the exact opposite of what it is supposed to, it encourages CEO’s to take ridiculous risks and gut the company to boost the stock price in the short term. </p>
<p>I dispute the fact that this is because CEO’s jobs have gotten more difficult, almost everyone’s have, but rather because the system reverted back to favoring CEO’s and executives, in many ways it is a 19th century view of things. When I went to grad school for management, they used to teach what was called ‘stakeholder management’, with the idea that companies had stakeholders; today, because of the compensation and because of the mania for stock price (instead of, for example, dividends), we have ‘shareholder management’, that affects mostly the upper level executives and the people who are the large shareholders, mostly people in the upper 1%.</p>
<p>One way to make this fairer would be to extend the compensation CEO’s enjoy to employees, so they benefit from the same thing. Alas, what has happened is the opposite, to get the shareholders and the CEO/executives their stock bonanza, they cut back on workers pay. Put it this way, for all the bilge I have read on here about the cost of total comp for workers, it is exactly that; other then the top 2% of workers, almost everyone else is either treading water or have lost significant real world wages since the 1970’s. Since 2008, the only group that has shown huge increases in pay are in the top 1% (really top .5%), as much as 20% a year) and it is troubling, even the WSJ and Harvard business school are worried about it, even a free market type like Allan Greenspan has said that the CEO pay bonanza doesn’t provide efficient management or creating risk assured businesses.</p>
<p>The arguments about it being only a small pool of ‘capable people’ is the original self fulfilling prophesy, those claiming that are also the ones making sure it is. Take a look sometime at how they choose a new CEO, and what do you see? Generally, instead of someone who has worked their way up inside the company, they choose some ‘guru’ from another company, usually someone who had a rabbi, rather then looking at someone who knows the company. Take a look at Bob Nardini, Home Depot hired him because he was one of Jack Welch’s favored sons, and he damn nearly destroyed the company, because what it turned out he was was Jack Welch’s beancounter, not a good manager (HD ended up paying him 150 million for destroying the company). Shareholder democracy sounds great on paper, but others are right, it generally is like soviet era voting, and boards of directors are entrenched, like politicians often are. Among other things, those sitting on boards are buddies of those running the company, and there is quid pro quo, A sits on B’s board, and makes sure B is taken care of;B (or someone associated with B) sits on A’s board, and does the same. </p>
<p>CEO is not a dirty word, but it depends on what you are talking about. a CEO of a startup is creating something new, and they generally do what people say, create wealth, new products and jobs. The CEO of large corporations? They basically exist to boost stock price, anyway they can, and maintain the status quo. Put it this way, big corporations don’t create jobs, for all the tax breaks they get, they don’t innovate, they simply milk what they have, while small companies do most of the real work. Arguing that a CEO of a mega corporation deserves their pay is moot, measured against what? If it is in creativity and job growth and changing things, forget it; if it is in pleasing idiot stock analysts and smoozing people into thinking they are geniuses, maybe. Arguing they are the best and brightest is highly debatable; what gets most people into the executive suite is in who they are around, who they know and it is an old boys network…there are transformative CEO’s, people like Jobs, like Bill Gates (Steve Ballmer is a clown), people who create things, execute things well, but for every one of those, you have the corporate smooze artist who got their position by being pulled and pushed up the ladder <em>shrug</em>. </p>
<p>The reason things were better 40 years ago and more is that workers had more power in things like wages, and also tax policy these days makes giving out huge compensation packages easier. To see the different, the heads of European and Asian conglomerates make a lot less then the CEO’s in the US, the average total comp is about 1 million a year, or roughly 40x worker salaries in those countries. With globalization (i.e cheap, desperate third world labor) companies took away whatever leverage workers had, and the results are evident.</p>
<p>@LasMa-</p>
<p>Exactly, it isn’t about the money per se, it is about getting more and more each year, and comparing it against the pay of other CEO’s, it is like the ballplayer who holds out because he is making ‘only’ 12 million, because some other guy on another team is making more.I remember reading that what Enron went under that Ken Lay and his charming wife (said sarcastically) were in the process of building I think 3 or 4 houses in various parts of the world, and the wife after Enron fell and Lay was indicted crying crocodile tears , that Enron going under ‘hurt them’, because they would have to forgo building some of the houses now, because they were counting on Enron shares to pay for them; meanwhile, Lay was worth something like 100 million dollars outside of Enron stock…</p>
<p>Momofkids, not all CEOs are corrupt of course or commit fraud in dealing in their stocks. Not every company is an Enron or Global Crossing of course. But I guarantee you that despite the limited windows and disclosure rules and quiet periods, etc., there are a number of ways to get around the SEC regulations, making a fortune, and getting away with it. Only the most arrogant and ostentatious of the bunch have been prosecuted in the past year.</p>
<p>I myself have had the opportunity to scam the system but never did through fear of the consequences. Received inside information from an insider high up in a public company that the company would be reporting a 2 cent loss while at the time, people were speculating on the message boards about a 4 cent gain. I could have shorted and made a bundle. I didn’t, through some sense of misguided honesty I suppose. But I could have. That type of stuff goes on every day of the week. Its obvious simply from watching the price action of stocks before earnings.</p>
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<p>I agree with a lot of what you say, but this is not true.</p>
<p>Only the least well connected politically have been prosecuted. MFGlobal had a trader sentenced, but Corzine, who commingled clearing customer and trading funds, did not even get a slap on the wrist. Some of those customers, people with families, who were not as well connected, went broke, literally, waiting for their funds to be released. Funds they hadn’t risked and hadn’t agreed to risk. He literally stole money to backstop his idiotic euro bond position and when the merrygoround stopped? People who hadn’t signed up were out their money. Some were out their careers AND their money.</p>
<p>He was juuuuust fine.</p>
<p>That’s one story. There are so many more it is ridiculous.</p>
<p>^^^^Well that’s only because Corzine, a Senator, Govenor, and CEO of Goldman simply “misplaced” billions of his clients’ funds. I mean, anybody can lose a few billion by accident right? Actually I totally agree. The lack of prosecution of the Wall Street Sociopaths is my biggest gripe about Obama. I suppose, I was referring more to Rajaratnam than anybody. But yep, far too many have gotten away with far too much. And because of that, it is easy to have contempt for our entire system of Justice, and long ago I was a prosecutor.</p>
<p>Yes, Rajaratnam, not connected and a total idiot.</p>
<p>Corzine bundled campaign funds for Obama. But, I don’t really “blame” Obama. It’s rampant on both sides of the proverbial aisle.</p>
<p>Kluge,
“MiamiDAP - you can’t become the CEO of a major American corporation. You are “banned” from that. You have a better chance of becoming President if the United States. If you don’t get that…”
-You are incorrect 100%. I am personally banned from becoming President by law. As simple as that. There is nobody in a world who can ban me from becoming the CEO. However, I had never had such a goal. There are plenty of others. And the road is not as easy and ther are NO red carpets. You got to be very motivated and you got to take huge risks. Nobody will hand you this on a silver platter. I am very happy and content with my job, my education and company that I work for. I have achieved it all by myself, including finding employment positions with the companies that have paid for my education. i had this plan and nobody was able to prevent it from happenning. There is NOBODY in a world who could ban somebody else from becoming a CEO, only person herself could do it.</p>
<p>I understood Kluge’s comment to mean not literal, legal “banning” (hence the quotation marks) but rather that you’re not a member of the club, and don’t have the background.</p>
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If you’re talking Steve Jobs or some other entrepreneur, then yes there are huge risks. Most large, mature businesses are not peopled by entrepreneurs at the senior levels, but by successful bureaucrats who don’t take risks. If they fail as they climb the ladder, they usually just get shunted off into “some make work, high title, high pay” job. If they make it to CEO then fail, they get huge payouts and future job prospects. Not much risk in either case.</p>
<p>Yes, what Hayden said was what I meant, and furthermore, what Hayden said about who becomes CEO’s of major American corporations (most of which are not run by risk-taking founder/entrepreneurs) is spot on. To a very large extent the “club” resembles the 19th century “upper classes” - once you’re in, you’re in, and the easiest way to get “in” is to be born there. The road described by MiamiDAP does not, in fact, lead to the boardroom of a major American corporation, unless you’re the guy who invented the next greatest thing, and we only see a handful of them at any given time.</p>
<p>On an unrelated note, I was encouraged to read that tech/eng grads are getting higher pay than Whaton grads. Carnegie Mellon CS tops, followed by Stanford Eng, NYU Nursing, Harvey Mudd, Wharton comes in 8th. Hopefully, when real skills are in demand old boy networks will become marginalized.</p>
<p>[25</a> College Diplomas With the Highest Pay - Forbes](<a href=“25 College Diplomas With the Highest Pay”>25 College Diplomas With the Highest Pay)</p>
<p>^^Then you might’ve heartened to know that my CMU kid said that survey was kind of old, and showed low pay scales.</p>
<p>Hey!! A chairman was fired by shareholders.</p>
<p>After the chairman made over $1 billion. </p>
<p>Nice pay package too after getting fired…</p>
<p>[$50M</a> for Getting Fired? OXY?s Ray Irani Takes C-Level Excess to New Heights | Daily Ticker - Yahoo! Finance](<a href=“http://finance.yahoo.com/blogs/daily-ticker/50m-getting-fired-oxy-ray-irani-takes-c-160355499.html]$50M”>$50M for Getting Fired? OXY’s Ray Irani Takes C-Level Excess to New Heights)</p>
<p>BD - The article is published in April this year. Did WSJ use an old survey? I would think an old survey will show high paying jobs in the financial industry not in tech sector.</p>
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<p>… seriously?</p>
<p>Fiction writers aren’t that clever.</p>