Friday, December 16, 2011

CEO Pay

From the indomitable Yves Smith at naked capitalism we find this discussion of CEO pay then and now. It seems so sensible to hold Cheif Executive Officers to performance standards, similar say to teachers, that it quite boggles my mind. And then, when one ownders out loud about such injustice the recipients of our largesse sniff 'class warfare.'


One of the big differences between private companies and public ones is private ones care a lot more about preserving their franchise, which includes their staff. In the old days of Wall Street (which I do not romanticize as a golden era, but man, it looks better than what we have now) partner would take bare bones pay in bad years to keep comp level for everyone else adequate. Similarly, in the 1970s and 1980s, when a company faced headwinds, and in particular, had to cut staff, it would be seen as a sign of poor leadership to a CEO to raise his pay.

Now that a two decades of executive pay increases way in excess of economic fundamentals and stock price increases have firmly established that shareholders be damned, CEOs have become even more aggressive in playing their “heads I win, tails you lose” game with stakeholders. Per the Guardian:

Chief executive pay has roared back after two years of stagnation and decline. America’s top bosses enjoyed pay hikes of between 27 and 40% last year, according to the largest survey of US CEO pay. The dramatic bounceback comes as the latest government figures show wages for the majority of Americans are failing to keep up with inflation….

This year’s survey shows CEO pay packages have boomed: the top 10 earners took home more than $770m between them in 2010. As stock prices began to recover last year, the increase in CEO pay outstripped the rise in share value. The Russell 3000 measure of US stock prices was up by 16.93% in 2010, but CEO pay went up by 27.19% overall. For S&P 500 CEOs, the largest companies in the sample, total realised compensation – including perks and pensions and stock awards – increased by a median of 36.47%. Total pay at midcap companies, which are slightly smaller than the top firms, rose 40.2%.

I don’t have a ready answer to this problem of CEO greed and narcissism. They operate in a world where this sort of behavior is applauded or at least rationalized, and broader public criticism is depicted as jealousy, rather than an accurate perception that CEOs are abusing their positions via their pay arrangements. More progressive tax rates would make a BIG difference, but we are a long way from that sort of change taking place.

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