On Executive/CEO Pay

[pinoyinus]

Recently, John McCain said that, if elected, he will rein in "excessive" executive/CEO pay.  I usually side myself with the free-market / capitalist system and would rather have less regulation.  I think our society is over-regulated as it is and putting in more regulation will not help.  On the subject of executive pay however, I've leaned more on the side of regulation and through this forum, I'd like to see what people here think of this subject.

Here are my reasons:

1.  As a software developer, I have personal experience where the company I worked for awarded stock options to the CEO all the way to directors, but not a single share of stock to the people who actually create the company's products.  It was such a lop-sided situation where the chairman and CEO came away with close to 10% of the company's net profits for that year.  Non-executive employees who actually make the products work and serve customers get nothing but their 2.5% - 3.5% annual raise.  I've spoken to other software engineers and technical people of other engineering fields and I've learned that my experience is not an isolated case. 

2.  The disparity between the average income and executive pay has never been higher.  I think this will polarize society , add fuel to class envy, and will further thin out the middle class ranks.  As we all know, the strength of any free society lies in its middle class.

3.  Excessive CEO pay is not the result of a free market.  In most cases, the approval of executive packages are done by the boards (stock holders don't have a direct say).  It is very common to have one person sitting on different corporate boards and be chairman in another.  This creates the "country club environment" where "I scratch your back, you scratch mine" arrangements are quite convenient.

I believe that it is goverment's role to promote a level playing field where opportunities are open to all who are willing to put their time and talents to work.  Once an enterprise becomes successful, I think it is only just that "awards" should be fairly given and not be monopolized by the executives.  I do understand that we all have the option to look for work and be employed with a company of our choosing.  We are free to negotiate the terms of our employment and when not treated well, we are free to resign and look for work elsewhere.  Executives however, have the same priveleges and MORE.  Executives have access to the corporate boards.  This access makes it easy for executives to find ways to award themselves on top of whatever it is that's stipulated in their employment contracts. 

Looking forward to all your opinions.

[Monkeyleg]

I don't believe that companies or boards of directors hire a CEO and throw piles of money at him for no reason. They hire the CEO because he has the talent to take the company where the board wants it to go, to make the company more profitable, or to turn it around if it's in trouble.

That kind of talent is more rare than the talents found in the worker pool, in the same way that the talents of a Tiger Woods or even an Oprah are more rare than those found in the general population.

However, I don't see anyone suggesting that the government put caps on how much entertainers or sports figures can earn.

But let's suppose they did. In fact, why not put caps on how much every person can earn? All you'd need to do is establish a government agency that would set salary caps for various occupations. IIRC, that worked fairly well in the USSR.

[Fly320s]

3.  Excessive CEO pay is not the result of a free market.

It most certainly is.  The company (board of directors) and the employee (CEO) agreed on a compensation package.  The deal was between the employer and the employee without outside influences or restrictions.  It can't get anymore free-market than that.

[Scout26]

1.  Don't like it ??  Go start your own company.

2.  Hmmm, Astor, Carnegie, Rockefeller, Mellon, Hearst, Vanderbilt, et al  Made much, much, more then the average worker as compared to today.  Show your data.

3. Fly320's beat me to it.  Ask GE stockholders if they want Jack Welsh back ??

[The Annoyed Man]

2.  Hmmm, Astor, Carnegie, Rockefeller, Mellon, Hearst, Vanderbilt, et al  Made much, much, more then the average worker as compared to today.

Yeah, robber barons and the sweatshops of the industrial revolution.  That's what we want back. 

[lupinus]

it certainly is in the stock holders hands.  If the stock holders can't stand the CEO, he wont be there long.  Being a CEO takes a lot more talent then being the average worker bee.  I've seen how hard they work, it aint easy, and it aint short.

[RocketMan]

It's a self-correcting situation.  If executive compensation is too high, the company will suffer at the bottom line.  This often leads to a stockholder's revolt, where they toss the scoundrels out and reign in the compensation packages.
But it's a lot more fun to froth at the mouth and scream about robber barons.

[roo_ster]

Ben & Jerry of socialist ice cream fame thought as did the OP.

They put a cap on their CEO pay at some multiple of the lowest paid worker...and went looking for a CEO.

Turns out at that pay rate, they could not find anyone competent enough to suit their requirements.

So, the socialist ice cream entrepreneurs tossed out their pay scheme and hired a CEO at a much higher salary than they had originally planned.  But, to assuage their socialist guilt, they made sure the guy they hired was at least black.

[Sindawe]

Being a CEO takes a lot more talent then being the average worker bee.  I've seen how hard they work, it aint easy, and it aint short.

Horse Puckey.  While a CEO may have skills as schmoozing and fast-talking, that is about the extent of their "skills".  In each of the commercial for profit area's I've been employed at; which over the years have included  Biotech, telecommunications and legal support; the "average worker bee" has a damn site more talent and works harder than the figure head CEO who sits in a plush air conditioned office while the "worker bee" toils over a hot fermentor or server.   When the CEO of the start up I used to work at walked away with a Golden Parachute and a executive standing ovation after running the company into the ground, the folks who sacrificed blood, sweat and tears for years in hot or cold miserable conditions; suffered physical injury and chemical exposure and gave their all to the company got a shown the door with a pitance for their pain.

Maybe I'd have a better opion of "CEOs" if they had to walk the plank to pay for their folly.

[lupinus]

So because some CEO's suck at their job means none of them work?

I sit in a nice A/C job in a comfy chair.  And I go through three times the stress doing more jobs that require more knowledge then some of our floor people could dream of.  I know that our managers have it worse.  Being a CEO (and doing your job, I'll be more specific this time) is not an easy task.

The guy on the construction site with a shovel sweats a lot more then the guy who designed the building.  Does that mean he is more valuable?

[De Selby]

3.  Excessive CEO pay is not the result of a free market.

It most certainly is.  The company (board of directors) and the employee (CEO) agreed on a compensation package.  The deal was between the employer and the employee without outside influences or restrictions.  It can't get anymore free-market than that.

Except that the employer is actually the public shareholder, not the board of directors.  The money doesn't belong to either the board or the CEO or the management-it's not their money, yet they spend it on each other as if it were.

Different standards apply when you are playing with other people's money, even in a free market, imho.

[K Frame]

"Except that the employer is actually the public shareholder, not the board of directors."

Actually, the employer IS the Board of Directors as in every corporation I know of, hiring/firing upper management is a role specifically designated to the Board of Directors.

I bet you would be hard pressed to find a single corporation in the United States whose incorporation documents give the shareholders a tangible say in compensation and hiring policies.

Over the years there have been numerous attempts by shareholders to influence the hiring/firing and compensation policies of numerous corporations, but virtually all have been abject failures. Any number of lawsuits have been filed, most have also failed simply because the articles of incorporation don't allow standing for the suits.

I suppose you could get all technical and say "well, it's like the United States, a representative republic type structure, in which the shareholders elect the board to serve on their behalf..."

It's actually not like that at all.

[Finch]

I believe that it is goverment's role to promote a level playing field where opportunities are open to all who are willing to put their time and talents to work.

Negative. The purpose of government is to secure liberty and personal freedoms. Promoting a level playing field is slang for socialism....

[De Selby]

"Except that the employer is actually the public shareholder, not the board of directors."

Actually, the employer IS the Board of Directors as in every corporation I know of, hiring/firing upper management is a role specifically designated to the Board of Directors.

I bet you would be hard pressed to find a single corporation in the United States whose incorporation documents give the shareholders a tangible say in compensation and hiring policies.

Over the years there have been numerous attempts by shareholders to influence the hiring/firing and compensation policies of numerous corporations, but virtually all have been abject failures. Any number of lawsuits have been filed, most have also failed simply because the articles of incorporation don't allow standing for the suits.

I suppose you could get all technical and say "well, it's like the United States, a representative republic type structure, in which the shareholders elect the board to serve on their behalf..."

It's actually not like that at all.

Of course the shareholders don't have a say in most cases-but it's still the shareholder's money.  The board and management are obligated to act for the benefit of the shareholders, but they don't in a large number of circumstances.  They are under a fiduciary duty to excercise every power they have for the benefit of the shareholders-because those are the people who own the company.

It is a fact that the board, the CEO, and all of the management are employed and paid for by shareholder money.  Because of the form of the organization, though, it's difficult to hold them accountable to the rightful ownership interests of the shareholders.  You basically have to be Dennis Kozlowski to get busted for treating the shareholder's money as your own.

[vernal45]

If you let the govt regulate CEO pay, what precedent are you setting?  Once you let them do that it will not be long before they will try to cap what you and I make. So my feelingsnon the subject are HELL no.   

[seeker_two]

I don't think gov't or anyone should regulate CEO pay. They should be paid as much as they want.....

...as long as I don't have to pay it.   

[GingerGuy]

Pinoyinos wrote, "I believe that it is goverment's role to promote a level playing field where opportunities are open to all who are willing to put their time and talents to work."

With all due respect Pinoyinos, your candidate, Hillary Clinton lost to a black man Obamo.  Her brand of socialism which includes statements like yours is a perfect example of thinking from a minority of Americans, never to which will gain much support and rightfully so.

Too many people make statements but do not ponder the consequences. 

Most people do not want the responsiblities of management or ownership.  For these individuals, they come into work, get a fair wage and go home each night.  If they wanted more, they would work for it, invest for it and pay the repercussions of the added responsibilities.  Leadership is easy to talk about, but difficult to be successful at unless you possess some special talents.

Only in America are we all free to achieve what we work for, I for one have a great respect for the average hourly wage earner.  He is America...and they should be honored every chance we get...

[Sergeant Bob]

Pinoyinos wrote, "I believe that it is goverment's role to promote a level playing field where opportunities are open to all who are willing to put their time and talents to work."

With all due respect Pinoyinos, your candidate, Hillary Clinton lost to a black man Obamo.  Her brand of socialism which includes statements like yours is a perfect example of thinking from a minority of Americans, never to which will gain much support and rightfully so.

Too many people make statements but do not ponder the consequences. 

Most people do not want the responsiblities of management or ownership.  For these individuals, they come into work, get a fair wage and go home each night.  If they wanted more, they would work for it, invest for it and pay the repercussions of the added responsibilities.  Leadership is easy to talk about, but difficult to be successful at unless you possess some special talents.

Only in America are we all free to achieve what we work for, I for one have a great respect for the average hourly wage earner.  He is America...and they should be honored every chance we get...

Aw, you just spend too much time listening to Rush Limbaugh. But you're correct on all counts.

I think Paddy and SS both make too much and their pay should be regulated! Wage ===>

[MechAg94]

So y'all want to let a body of rich guys who vote themselves pay raises regulate the pay of other rich guys who run companies?  Something is not right with that picture. 

[MechAg94]

Shareholders do have some say in CEO's and companies, they can sell their shares.  CEO's are partly judged by share price as most of those guys on the board often own a lot of them. 

[The Annoyed Man]

I think Paddy and SS both make too much and their pay should be regulated! Wage ===> police

Uh, I'm unemployed and have zero earned income.  But if you want to guarantee me some monthly/annual minimum, that's ok. 

[taurusowner]

Shareholders do have some say in CEO's and companies, they can sell their shares.  CEO's are partly judged by share price as most of those guys on the board often own a lot of them. 

Precisely.  If the Board makes some move and see their stock drop a bunch of points in return, they're gonna reconsider that move.  That includes the hiring and firing of CEOs.

[The Annoyed Man]

Recently, John McCain said that, if elected, he will rein in "excessive" executive/CEO pay.  I usually side myself with the free-market / capitalist system and would rather have less regulation.  I think our society is over-regulated as it is and putting in more regulation will not help.  On the subject of executive pay however, I've leaned more on the side of regulation and through this forum, I'd like to see what people here think of this subject.

Here are my reasons:

1.  As a software developer, I have personal experience where the company I worked for awarded stock options to the CEO all the way to directors, but not a single share of stock to the people who actually create the company's products.  It was such a lop-sided situation where the chairman and CEO came away with close to 10% of the company's net profits for that year.  Non-executive employees who actually make the products work and serve customers get nothing but their 2.5% - 3.5% annual raise.  I've spoken to other software engineers and technical people of other engineering fields and I've learned that my experience is not an isolated case. 

2.  The disparity between the average income and executive pay has never been higher.  I think this will polarize society , add fuel to class envy, and will further thin out the middle class ranks.  As we all know, the strength of any free society lies in its middle class.

3.  Excessive CEO pay is not the result of a free market.  In most cases, the approval of executive packages are done by the boards (stock holders don't have a direct say).  It is very common to have one person sitting on different corporate boards and be chairman in another.  This creates the "country club environment" where "I scratch your back, you scratch mine" arrangements are quite convenient.

I believe that it is goverment's role to promote a level playing field where opportunities are open to all who are willing to put their time and talents to work.  Once an enterprise becomes successful, I think it is only just that "awards" should be fairly given and not be monopolized by the executives.  I do understand that we all have the option to look for work and be employed with a company of our choosing.  We are free to negotiate the terms of our employment and when not treated well, we are free to resign and look for work elsewhere.  Executives however, have the same priveleges and MORE.  Executives have access to the corporate boards.  This access makes it easy for executives to find ways to award themselves on top of whatever it is that's stipulated in their employment contracts. 

Looking forward to all your opinions.

John McCain says everything he says on behalf of what is good for John McCain. He's pandering to the collectivists.  There are two ways of looking at this - either you believe the collective should make decisions for the individual or you believe only the individual should make decisions on behalf of the individual. He is exactly the same as the robber barons of the 1800s except he hides behind government. I challenge you to find a President who has not taken advantage of his connections and knowledge to become more wealthy. That is exactly what CEOs do. The only difference is that CEOs have less ability to use the legal system to vote money out of someone else's pockets than the President of the United States. It is the ultimate in hypocrisy.

Our current politicians are as crappy as they are for precisely the same reasons that you claim CEO pay is inflated - voters have NO direct representation. The two-party system is a travesty. Every decision made in Washington hurts one group in order to "help" some other because government doesn't generate money, it just takes it away from others.

[thebaldguy]

I don't have much of a problem with a CEO earning good money if they're worth it. But a lot of them do a bad job, get mega raises, run the company into the ground, and leave with a golden parachute. Employees see their jobs go, and shareholders lose with falling stock prices. Shareholders are generally powerless to restrain the pay of a CEO.

CEO positions seem to be almost a cult. I see them jump from company to company often for more pay after doing a bad job at the last company. It's almost impossible to become a CEO; even with the education, it seems like it's still an "Ol' Boy/Girl network that's hard to get into.

I love how Directors on the company board justify high CEO salaries. "You have to pay good people good money" they say. But when good workers want a raise or a share of the profits, they always seem to say "The company can't afford it". Even better, the fire Americans and move the jobs overseas.

[Scout26]

2.  Hmmm, Astor, Carnegie, Rockefeller, Mellon, Hearst, Vanderbilt, et al  Made much, much, more then the average worker as compared to today.

Yeah, robber barons and the sweatshops of the industrial revolution.  That's what we want back. 

I was referring to the OP's statement:

The disparity between the average income and executive pay has never been higher.

I asked for proof of his statement.  And IIRC, the Industrial Revolution is what help made this country what it is today.