On Executive/CEO Pay

[Scout26]

You're quoting Ralph Nader as some kind of economic expert?

Yeah, that's an unbiased source.... 

[pinoyinus]

You're quoting Ralph Nader as some kind of economic expert?

instead of focusing on the messenger (Ralph Nader), I think it would be more interesting if you would argue against the points he raised in his article.

[Balog]

You're quoting Ralph Nader as some kind of economic expert?

instead of focusing on the messenger (Ralph Nader), I think it would be more interesting if you would argue against the points he raised in his article.

I could respond by quoting Infowars on how it's all a plot to bring on the NWO. Sources do matter, especially in Op-Eds. I don't feel the need to rebut his "arguments" anymore than I'd feel the need to rebut the the Unibomber's manifesto if someone posted it as a valid source.

[xavier fremboe]

Alright, these threads always get interesting. 

<rant>I understand that most of the opinions have to do with a publicly traded company perspective, but I take offense.  I am a minority owner of a small business.  I started my business 9 years ago with my own money.  I've seen up and down, fat and lean.  I've had to react to market changes and opportunities.  I now own equipment that I don't know how to run, which I never thought would happen.  My partner and I have always been 'hands on'.  But, at a certain point it makes no sense for us to be running equipment.  I have employees who are more skilled at it than I am, and will be more innovative.  I no longer provide the services I sell, so I am the CEO you are talking about.

Here's what my partner and I bring to the table.  We have bet everything, and I mean personal guarantees on everything less retirement funds, on this business.  My fortunes rise and fall with my ability to predict problems and exploit opportunities.  My ability to build a moat protects not me, but also my employees.

Who gets paid last?  I do.  Try keeping employees after missing a payroll check.  In our first four years in business, I skipped a total of 52 weeks of paychecks.  Was I compensated handsomely in subsequent years?  Yes.  Hell, yes.  Thankfully yes.

My point in all of this is as follows.  Paddy and others will argue that the ownership of the means of production is not the basis for the discrepancy between upper level pay and production pay (Marx & Engels Playbook Page 1, Play 1).  That is total and utter BS.  If my business goes in the toilet, I get to close it down.  I get to ride the plane all of the way to the scene of the accident, plus I get to clean up the mess.  My employees will get sterling letters of recommendation and my assistance in finding new work.  Risk should yield greater reward.

To the OP, if you think your CEO is making too much money off of your labor, quit and find a job where your skills are more valued.  It is a free market for labor as well.  If I want to keep my employees, I have to keep them happy where they are and pleased with my leadership.  Otherwise the time and training that I have invested in them is wasted.  They will leave my company to my competitors or just leave period.

If you are concerned with CEO pay, subscribe to a Motley Fool newsletter or two.  They tend to get nervous when management's fate isn't shackled to the shareholder's, and will let you know when to be uncomfortable.
</rant>

[Firethorn]

To the OP, if you think your CEO is making too much money off of your labor, quit and find a job where your skills are more valued.  It is a free market for labor as well.  If I want to keep my employees, I have to keep them happy where they are and pleased with my leadership.  Otherwise the time and training that I have invested in them is wasted.  They will leave my company to my competitors or just leave period.

By the sound of it, you're not a CEO, your the owner of the business.  Relatively speaking, a CEO is a different sort of beast altogether than a Owner-Manager - A CEO is merely the 'top employee'.

If you are concerned with CEO pay, subscribe to a Motley Fool newsletter or two.  They tend to get nervous when management's fate isn't shackled to the shareholder's, and will let you know when to be uncomfortable.

A very good point.  Personally, I'd tend towards tying executive pay to long term stock performance - not just next week or next years.

To an extent, CEO pay tends to be high for ailing companies because they're looking for a golden boy to come save them - I call it the quarterback problem.  There's plenty of quarterbacks(CEOs) out there, but there's only 1 'top' quarterback.  This results in a bidding war, which gets expensive.

Still, I think that, in some companies at least, the executives need to be fired and replaced with better ones - that won't go paying millions to a failed CEO.

[Silver Bullet]

Flashing back to 40 years ago on Laugh-In:

Jo Anne Worley, talking about her husband Boris:

"Boris says capitalism doesn't work.  But then, neither does Boris."

[pinoyinus]

xavier,

You are not the CEO that I am talking about.  If you read previous posts, I clearly said that I don't think regulation should apply to private businesses.  What I'm talking about are publicly traded companies where boards/CEO's "play" with other people's money.  Yes, most if not all board members/executives do own stock so they're also palying with their own money.  But most of the money comes from mutual funds and retirement funds owned by poor "laborers" like me.  Let's also remember that a lot, if not most, of all those stock were awarded to executives as options. 

Let me say that I admire people who have the entrepreneural guts and skills, who start a company and whose success and failure are tied to their company's fate.  Nowadays however, it's not so difficult to find a publicly traded company which has been run poorly by a CEO and that CEO gets to have that golden parachute.  So the CEO gets off the ship and makes out very well.  In a lot of these cases, the outgoing CEO can afford to retire.  But the ordinary employees are left out to dry.  The irony of it all is that the CEO makes hundreds of millions of dollars while running the company to the ground.  If we can't see anything wrong with that system, then perhaps we wouldn't see anything wrong with child labor as well.  Perhaps some people here, although they won't admit to it, would rather that we go back to the time of the rubber barons, sweat shops and unsafe working conditions for those poor laborers.  If those poor laborers don't like the sweat shop conditions then they should just go find jobs somewhere else right?  But no.  Whether we like it or not, a majority of the people in this country want those poor laborers to have some form of dignity. 

I do not like our welfare system.  If an able person refuses to work, then he doesn't deserve a paycheck.  I also recognize that an investor has a right to have a decent return from his investments commensurate with the risks that he takes.  But when a person is employed and puts out the best work that he can, I think he's also entitled to the same "pork barrel" that executives and boards dig into.  I believe that the success of a company is not the result of the CEO's work alone.  It is the result of the collaboration of the workers in that company from all levels.  I do recognize that the workers from different levels/function also contribute to the success in different ways and in varying levels of importance.  That's why I'm not advocating a marxist vioew of getting paid "in accordance with one's needs".  But if a CEO comes away with a $200 million bonus on top of what's stated in his contract as the agreed salary, at a time when employees get a turkey and $100, I just think that there's something terribly wrong.  Am I the only seeing it?

[cordex]

What I'm talking about are publicly traded companies where boards/CEO's "play" with other people's money.  Yes, most if not all board members/executives do own stock so they're also palying with their own money.  But most of the money comes from mutual funds and retirement funds owned by poor "laborers" like me.

A board and CEO are hired with the intent that they "play" with other people's money.  That's their job.

Nowadays however, it's not so difficult to find a publicly traded company which has been run poorly by a CEO and that CEO gets to have that golden parachute.  So the CEO gets off the ship and makes out very well.  In a lot of these cases, the outgoing CEO can afford to retire.  But the ordinary employees are left out to dry.  The irony of it all is that the CEO makes hundreds of millions of dollars while running the company to the ground.

There are a number of assumptions here, most notably:
1. That hotshot CEOs whose companies fail are necessarily at fault for that failure.  Many times, very high priced CEOs are brought in because there are serious problems at a company.  If I were in that CEOs shoes, I wouldn't want my pay tied to the success of a dying company I wasn't sure I'd be able to save, so before I would take a risky job, I'd want to know I was going to be paid for my effort.  If you bring in a specialist doctor after the previous doctor had let the patient deteriorate too far, should the specialist be held responsible for the death of the patient?
2. That boards hire screwup CEOs with huge salaries at whim because they only care about giving their buddies millions and millions of dollars.  Your average board member stands to lose a lot of money if the CEO brings the company down in flames.  If I were in the board's shoes, I'd probably be willing to bet on the best I could afford, especially if the company is already in trouble.
3. That screwball CEO failures with huge compensation packages are the norm.  I'm not convinced that's the case.

If we can't see anything wrong with that system, then perhaps we wouldn't see anything wrong with child labor as well.  Perhaps some people here, although they won't admit to it, would rather that we go back to the time of the rubber barons, sweat shops and unsafe working conditions for those poor laborers.  If those poor laborers don't like the sweat shop conditions then they should just go find jobs somewhere else right?  But no. Whether we like it or not, a majority of the people in this country want those poor laborers to have some form of dignity.

"Poor laborers" in this country are unbelievably wealthy by the standards of any other time and most other places.  Many "poor laborers" in this country have substantial income to spend on luxuries.  Trying to draw parallels between "poor laborers" of today and sweatshop workers of yesteryear is a non-starter.

Oh, and you can't give away dignity.

I do not like our welfare system.  If an able person refuses to work, then he doesn't deserve a paycheck.  I also recognize that an investor has a right to have a decent return from his investments commensurate with the risks that he takes.  But when a person is employed and puts out the best work that he can, I think he's also entitled to the same "pork barrel" that executives and boards dig into.

Why?

I believe that the success of a company is not the result of the CEO's work alone.  It is the result of the collaboration of the workers in that company from all levels.  I do recognize that the workers from different levels/function also contribute to the success in different ways and in varying levels of importance.

Agreed.

That's why I'm not advocating a marxist vioew of getting paid "in accordance with one's needs".  But if a CEO comes away with a $200 million bonus on top of what's stated in his contract as the agreed salary, at a time when employees get a turkey and $100, I just think that there's something terribly wrong.  Am I the only seeing it?

I won't argue whether or not your hypothetical case is right or wrong.  I don't know what the CEO did that made him worth a $200 million bonus.  Typically bonuses are assigned based on exceeding certain criteria, so if the CEO managed to turn a failing company around and triple its revenue, maybe they are worth that bonus.

[pinoyinus]

"Poor laborers" in this country are unbelievably wealthy by the standards of any other time and most other places.  Many "poor laborers" in this country have substantial income to spend on luxuries.  Trying to draw parallels between "poor laborers" of today and sweatshop workers of yesteryear is a non-starter.

There are also no parallels between CEO pays of today and CEO pays of yesteryears.  So what's the point?  I just simply refuse the argument that CEOs deserve hunderds of millions of dollars but your averge employee should be happy with the current situation because hey they're far better off than they were fifty years ago.

I do not like our welfare system.  If an able person refuses to work, then he doesn't deserve a paycheck.  I also recognize that an investor has a right to have a decent return from his investments commensurate with the risks that he takes.  But when a person is employed and puts out the best work that he can, I think he's also entitled to the same "pork barrel" that executives and boards dig into.
Why?

For the same reason that the CEOs are entitled to their bonuses and stock options.  Again maybe not to the same amounts.  But the current situation where employees get nothing and CEO's get the most of everything is not my idea of "fair".

I won't argue whether or not your hypothetical case is right or wrong.  I don't know what the CEO did that made him worth a $200 million bonus.  Typically bonuses are assigned based on exceeding certain criteria, so if the CEO managed to turn a failing company around and triple its revenue, maybe they are worth that bonus.

Look up the previous posts where I cited 2 publicly traded companies where the total CEO compensation amounted to $300 million++ each for one year alone (year 2007). 

I find it ironinc that we question why the average worker should get his share of bonuses and stock options but we're very quick to give the CEOs the benefit of the doubt.  Well let's assume that the CEO did deserve his $200 million bonus/stock options because the company was able to turn around and have it's profit tripled.  But don't tell me that the CEO did everything while everyone watched and did nothing.  I thought we agreed that the success of a company is not the result of the CEO's work alone and that the success is the result of the collaboration of the workers in that company from all levels.  So if the CEO deserves his $200 million why is it that the average worker deserves nothing?  Yeah, yeah yeah - I know - the employee gets his salary but so does the CEO.  Again, this sort of thing does not happen in all US public companies but its an undeniable fact that the ratio between CEO and employee compensation has never been higher. 

[Ezekiel]

I find it ironinc that we question why the average worker should get his share of bonuses and stock options but we're very quick to give the CEOs the benefit of the doubt.

Because the CEO is a skilled laborer?

Pawns get treated like pawns, in any bureaucracy.  Their best hope is to find a manner in which to cease being pawns: either reject the farcical system or be/do/become something worthwhile.

The difference is that the amount of available pawns is nearly endless.  CEO's?  Capable or otherwise?  Not so much.

[Firethorn]

Cordex, I figure all the reasons you listed happen, but I can't say that it's universal.

Personally, I don't see much in the way of objection to CEO pay when stocks are rising and profits are being made.  I hear a lot of objections when a CEO leaves a company, gets a multimillion golden parachute while leaving the company worse off than before.

It smacks of rewarding failure.  Much like a quarterback(or other star player), you see no complaints when they're winning.  If they're screwing up, then the complaints start.

[cordex]

Personally, I don't see much in the way of objection to CEO pay when stocks are rising and profits are being made.  I hear a lot of objections when a CEO leaves a company, gets a multimillion golden parachute while leaving the company worse off than before.

If it's a serious problem, executive contracts need to be written differently to allow for terminating the skunky CEO without giving a golden parachute.  I do think that companies which take that approach will be less likely to entice the best and brightest CEOs, however.

Something tells me that screwup CEOs getting hundreds of millions of dollars is like a man bites dog story in that it gets reported more because it is rare and seems newsworthy.

There are also no parallels between CEO pays of today and CEO pays of yesteryears.  So what's the point?  I just simply refuse the argument that CEOs deserve hunderds of millions of dollars but your averge employee should be happy with the current situation because hey they're far better off than they were fifty years ago.

I'm not sure I follow you.  You kept hearkening back to the industrial revolution by comparing aborers of today with starving workers in sweatshops.  I pointed out that such a comparison is unfair because in this day and age, even our poor can afford luxuries well beyond the necessities of life.  Whether or not CEOs "deserve" their multi-million dollar bonuses in general I can't argue, but that's what the market will obviously bear, so I'm not sure why you're so worried about it.  If the companies can't afford to pay them those kinds of wages, they either won't, or they'll go under.

If your average employee isn't happy, there are plenty of jobs out there at companies which don't reward CEOs with hundreds of millions of dollars.

For the same reason that the CEOs are entitled to their bonuses and stock options.  Again maybe not to the same amounts.  But the current situation where employees get nothing and CEO's get the most of everything is not my idea of "fair".

Different companies are run different ways.  At my company (a privately owned company whose current CEO is also the owner), employees are rewarded annually based on the success of the company and the length of their service.  While I'm happy about that, it's a bonus, not the salary I expect to receive from the company.  And I don't get rubbed wrong that the execs get more of a bonus than I do.  They are also the first to take cuts when we have to tighten our belt.

Again, if you don't like your total compensation package with a company, or if you don't like the CEO's compensation package specifically, go elsewhere - there are plenty of other options out there.  I just don't see why the government would need to get involved or set caps on any sort of earning.

Look up the previous posts where I cited 2 publicly traded companies where the total CEO compensation amounted to $300 million++ each for one year alone (year 2007). 

I didn't argue that it never happened.  Why did those CEOs receive those bonuses?  Were they just out of the blue gifts for being good ol' boys?  Or had those CEOs exceeded some benchmark for corporate productivity, sales, profits, expansion, etc., that made them (in the eyes of the board) worth the bonus?

I find it ironinc that we question why the average worker should get his share of bonuses and stock options but we're very quick to give the CEOs the benefit of the doubt.  Well let's assume that the CEO did deserve his $200 million bonus/stock options because the company was able to turn around and have it's profit tripled.  But don't tell me that the CEO did everything while everyone watched and did nothing.  I thought we agreed that the success of a company is not the result of the CEO's work alone and that the success is the result of the collaboration of the workers in that company from all levels.  So if the CEO deserves his $200 million why is it that the average worker deserves nothing?

This thread is rife with discontent about CEOs who "run their company into the ground."  If we're so quick to blame the CEO for corporate failure, I'm not sure why we don't assign a similar proportion of responsibility for success.

Employees, customers and investors can vote with their feet and their dollars.  If an employee is easily replaced, it stands to reason that their contributions are of less value, does it not?

To be clear, I'm not CEO material.  I'm just not cut out for that.  However, I do have the pleasure to know several executive types who are CEO/COO/President material.  My guess is that the people who claim that executives work no harder than the average Joe, and don't have any special skills beyond your average lay worker either don't really know any execs or have a very small sample of incompetent execs they are using as a basis for their opinion.  Yeah, there are some worthless ones out there - as in any job - but it would be a mistake to assume that just anyone could do the job well.

Yeah, yeah yeah - I know - the employee gets his salary but so does the CEO.  Again, this sort of thing does not happen in all US public companies but its an undeniable fact that the ratio between CEO and employee compensation has never been higher. 

So what?  I'm still trying to understand why we should involve the government to "fix" the problem?  It's not as if the government is particularly known for its fairness or efficiency.  Look, I understand thinking the situation is unfair.  I support rewarding employees for their contributions, but I fail to see why the government needs to step in to make things fair in your eyes.

I also think we're mixing up a number of subjects:
1. Should CEOs ever get huge bonuses?
2. Should CEOs get huge bonuses without rewarding every janitor and fry cook in the business?
3. Should CEOs get huge bonuses when the company fails?
4. Should CEOs get huge bonuses when the company fails and it is their fault?
5. Should the government step in and make the situation more "fair" by adding more restrictions, laws and regulations, setting salary caps and bonus caps and generally meddling in corporate affairs?

My answers:
1. Sure, if the market will bear it.
2. Sure, if the market and employees will bear it.
3. It depends on what is in their contract.
4. It depends on what is in their contract, but I'd hope that they wouldn't.
5. Absofrigginlutely not.

[longeyes]

The way the American economy is going many of these overpaid CEOs won't be employed in a few years because their companies either won't exist or will have been bought by foreign entities.  The American golden age of corporate poobahs is coming to an end.