<p>IMHO, this is not unfair. The fact that he/she “makes more than me” with-out regard to the responsibility and decision making on the part of the higher up is totally uneducated and irresponsible.</p>
<p>None of you have addressed the athletes or actors concern. Why?</p>
<p>While it might seem that it is the competitive market forces which set salaries for CEO’s, that’s not what I have seen. What happens in the real world is that the board decides on who they want to hire, then they get a consultant to tell the board what to pay its CEO. The consultant comes back and says, okay, the median salary similar sized companies pay their CEO’s is X. The board says well, if that’s the median, then we have to pay the median, or maybe the median plus 10%. All of us who know anything about math can imagine what happens when companies peg their CEO salaries to the median. Bingo - the CEO salaries skyrocket as the median is leapfrogged up every year. That’s why CEO salaries go up geometrically while mid and low level worker salaries go up algebraically. Senior people in the rank just below the CEO level are all happy, since they are often paid as a percentage of the CEO salary.</p>
<p>As for market forces - does anyone honestly believe that you can truly gauge the real value of a CEO? It’s too subjective. If the value of the company goes up, the CEO’s salary goes up. If the value of the company goes down, the CEO’s salary goes up. And if he/she fires a bunch of workers to cut expenses because the company is performing badly, then the salary might go up even more. Furthermore, would you honestly believe that a CEO would be incented by a salary of $50 million, but would laze out and do nothing, or quit, if he/she were paid $49 million? Don’t think so.</p>
<p>The fact is that there is virtually no relationship between the company’s performance, and the CEO salary. The “responsibility and decision-making” is a myth, since there is no real downside to poor decision-making. As Warren Buffet has said, the most lucrative job in America is to be a failed CEO, since he/she is typically paid millions and millions of dollars just to go away.</p>
<p>
I just don’t want anyone other than me to determine how much money I need/want - it’s none of their business and I don’t want them to impose their opinion on my wallet. I could probably argue there are few posters on CC who need the level on income they have but I consider things like computers, TVs, furniture, lawns, vacations, cars, and many other things not absolute necessities.</p>
<p>One problem with a discussion like this is there’s often a jealousy/envy factor at the root of it. I think the accurate answer is - was it worth investing $50M in a CEO who manages to demonstrate a positive influence on the business of 10, 20, or 100 times that - ‘yes’. Is a CEO worth $50M who’s heading a company having layoffs? Maybe yyes and maybe no. If that CEO was brought in to turn around a company losing money due to bloat then the answer’s yes. If the company ended up having to layoff as a ‘result’ of hiring that CEO and the poor practices put into place by the CEO, then obviously the CEO wasn’t worth that money and should be fired probably along with whoever hired him in the first place.</p>
<p>There are clearly CEOs who aren’t worth their compensation but there are clearly others who are depite it being a much higher compensation than most of us earn but it’s not really any different, other than the scale, than most of us experience when we have incompetent coworkers earning more than some very competent ones.</p>
<p>So the short answer is yes. Usually chief executives deserve their pay.</p>
<p>
That’s not even logical. If a CEO fails at company 1 then 2 then 3 then 4 vs a CEO that succeeds at company 1 then 2 then 3 then 4 (fail/success defined as the relative health of the company) do you seriously think the first CEO is in the same bargaining position as the second CEO when it comes to company 5?</p>
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<p>He goes into government.</p>
<p>ucsd etc.: No, it doesn’t seem logical. But I see it all the time. My own company hired a 3time loser, then paid him $25 million to leave when he failed a 4th time with us. </p>
<p>What is missing from this discussion is the subjective quality of the CEO job. If they fail, it’s not because they failed, but it’s the [fill in the blank]. </p>
<p>Because the dirty secret of current corporate work in America today is that so little of what we do is actually related to producing things. We have become a country of financial services. Therefore, the quality that the senior execs bring, is the ability to sell themselves more than the ability to actually do anything. You may think I’m too cynical, but I have seen it more times than I can count.</p>
<p>
Assuming he was hired by the board of directors or owner of the company that sure doesn’t instill confidence in their decision making ability. I think I’d make sure I don’t own any stock in that company. Of course, I might still be working for them if they paid me enough. </p>
<p>CEOs generally have a significant impact on the company - in its profitability and future direction. A bad CEO can drive a company into the ground (if permitted to by the board) or make its profits increase and position the company well for the future. A good one is worth the money and a bad one needs to be fired right away or better yet, not hired in the first place. It seems strange that this company would hire a 3 time loser.</p>
<p>OK, so Bloomberg is not a blog, so I think I’m OK here
[Interactive</a> Insight: The Gap Between Pay and Performance - Bloomberg](<a href=“Bloomberg - Are you a robot?”>Bloomberg - Are you a robot?)</p>
<p>I guess there are lots of boards out there that don’t give a hoot whether or not pay reflects performance. Just hand out the dollars cause everyone else is. Plus with all those mgt folks on the board…why not?</p>
<p>I agree that a competent CEO is worth his or her weight in gold. Problem is there aren’t many out there. But you wouldn’t know that based on how they’re paid. </p>
<p>Stop the comparisons to sports stars. Do you remember Enron? A few greedy folks and a greedy or perhaps clueless CEO caused the complete failure of a company. Lots of lost jobs. Lots of decimated retirement plans. And how about those CEOs from the failed banks with massive golden parachutes? While Everyone is out of job and left with worthless stock, including the shareholders. But they get millions. I don’t see this in sports. Do you?</p>
<p>^^ I’m not a big team sports fan but I think there have been a number of cases where some athlete received a huge salary and then didn’t perform to the potential detriment of the investors. Ditto for some actors in movies again to the potential detriment of the investors. It’s not on the same scale as Enron for sure but there are still some similarities. Perhaps a closer example would be paying huge dollars for a coach who ends up driving a team into the ground - again to the detriment of these businesses and any investors.</p>
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<p>Athletes aren’t really in a free market. MLB has a league minimum, and I’m pretty sure the NFL and NBA do to. Both of those leagues have team salary caps, and the NBA has an upper limit on how much you can pay a single player. The Heat will easily recoup what they end up paying for LeBron James. It actually would’ve been interesting to see what the bidding would’ve been if teams were allowed to pay what they thought his market value was.</p>
<p>
</p>
<p>= Jamarcus Russell</p>
<p>[Russell</a> as a Raider, in one handy stat: $100,000 per completion - Shutdown Corner - NFL - Yahoo! Sports](<a href=“NFL News, Expert Analysis, Rumors, Live Updates, & more - Yahoo Sports”>NFL News, Expert Analysis, Rumors, Live Updates, & more - Yahoo Sports)</p>
<p>Andruw Jones also signed with the Dodgers for $36 million but only had 33 hits for the team.</p>
<p>The primary objectives of a public company are:</p>
<p>a. Make profits.
b. Increase shareholder value.
c. Produce and sell valuable products/services
d. Contribute to the well-being of society.</p>
<p>CEOs are hired primarily to maximize a & b, secondarily c & d. Of course, a & b are heavily influenced by c & d, but CEOs may maximize a & b without necessarily manipulating c & d.</p>
<p>So, CEOs may get a “pass” if c & d are at a minimum as long as a & b are being maximized. However, CEOs will be “let go” if a & b are minimized even if c & d are maximized. It seems CEOs are mainly rated according to how well they perform in a & b.</p>
<p>With those in mind, who is a better CEO?</p>
<ol>
<li>The person who maximizes a & b short term but minimizes it long term?</li>
<li>The individual who maintains “stability” both short term and long term?</li>
<li>The person who minimizes a & b short term but maximizes it long term?</li>
</ol>
<p>Is a CEO who maximizes a & b by downsizing just as capable as a CEO who maximizes a & b by pushing for better product quality? Should a CEO who pushed for short term growth be obligated to return part or all of his/her earnings if it is demonstrated the short term moves were detrimental in the long term? Does the high quality of employees compensate for the ineffectiveness of a crappy CEO thus leading to that CEO being paid high earnings despite his low skill level?</p>
<p>Questions, questions!</p>
<p>3…</p>
<p>1…only if you want to sell and can find a sucker</p>
<p>dstark,
You are dreaming of Cuba here. Well, we are getting there, following your dreams.</p>
<p>lol…</p>
<p>It should be more or less obvious that any trend on an exponential path is unsustainable, whether it is CEO salaries or college tuition. As a shareholder, I have pretty voted against every financial compensation plan in the past few years. I used to try to decide whether they were good or bad, but now I think they pretty much all encourage short-term profit-making behavior such as slash-and-burn management.</p>
<p>Generalization like “it’s free market” or “they are overpaid” ignore the complexity and diversity of CEO pays, board structure, corporate governance out there. For example, you can have CEOs who are also the Chairmans and CEOs who aren’t. Some boards have the majority with at more than 10 years of tenure while others are more diverse. People can’t just automatically assume all compensation decisions made by the board/CEO align with shareholders interests. Oh, just because shareholders haven’t thrown the CEO out doesn’t mean CEOs haven’t been overpaid. Investors don’t have perfect information or they don’t really look at that closely. Then, there’s the question on whether CEO can really be easily removed given the particular voting/board structure. Not to mention accounting tricks that CEO/CFO use to make it look like CEO “turn around” companies.</p>
<p>CEOs in many companies are probably underpaid when compared to how the CEO at HP has been compensated. HP has four incentive plans based on similar measures. The executives are paid more than once for a similar achievement. The compensation program looks redundant. Note that the CEO is also the Chairman of the Board.</p>
<p>Good post Sam Lee</p>
<p>“Note that the CEO is also the Chairman of the Board”.
Yeah, that’s pretty common. It’s what you call a major conflict of interest. Why not require independent boards? That’s not Cuba…it’s just common sense. </p>
<p>And the free market thing…come on. Yes, we have aspects of a free market. But we also have minimum wage, overtime laws, and other protections. </p>
<p>And yes, shareholders can suffer when a company has an incompetent overpaid CEO. Who is also on the Board. And publishing fantasy numbers. But so do employees. With Enron, electric company employees in Seattle lost their entire sum of retirement savings as a result of a a bunch of overpaid idiots, in a system that rewards short-term gain and allows management to be in bed with the board. I don’t see this happening in the sports world. </p>
<p>Something is wrong here…some of this nonsense is what caused the current recession. We should learn from our mistakes…</p>