Too Many CEOs Think They are One of the Very Few

During times of economic prosperity the chatter around CEO compensation is a simple whisper. But during downturns the chatter turns to a roar. Just last week I wrote about how many companies are not complying with SEC requirements to disclose the thresholds required for CEO pay. My post is called What is promised to Wall St and what is promised to the CEO are not the same and what I say in that post is

What bothers me the most about what is happening is this behavior feeds
into the idea of “The Man” and “The Company” that is now being
fictionally illustrated on several successful TV shows (24 and Prison Break
for example). And why wouldn’t it? Productivity has increased at very
healthy levels over the past 6 years but the income from those
improvements has been sucked up by the executives that are fortunate to
be in control of the company at the time of the success. I wrote about
it in one of my first posts called Productivy Pays – The CEO. This entry highlights an article from from almost a year ago called GDP growth not reaching paychecks and CEO pay: 364 times more than workers.
When stats like this come to light and the noncompliance by companies
to the SEC when it is trying to create more transparency, it really
shows that the average working man is a sucker.

Today in the NY Times is a similar Op-ed piece by NICHOLAS D. KRISTOF called Need a Job? $17,000 an Hour. No Success Required. The main theme is how executives that do a poor job with their company still rake in very handsome compensation packages while the working man gets nothing. I read many of the comments attached to the piece but I can’t completely agree with their tone as several latched onto the stat that many CEOs earn more than 30 times the lowest employee. But I didn’t take the piece as an attack on overall CEO compensation but rather bad CEOs that still get paid even when the sand castle gets washed away. If you concentrate on the multiple you don’t give credit to the job many CEOs do accomplish whether it is accepting the risk of a start up that eventually reaches mega success (Google) or the reclaimation project that turned a doomed company into a shining star (Apple). My point is there are times the CEO deserves the reward because they did something very few others could. But too many executives think they are part of that very few. And that leads to my favorite parts of the piece:

But one of our broad national problems is rising inequality, and it is exacerbated by corporate executives helping themselves to shareholders’ cash.

“Compare the massive destruction of wealth for shareholders to what he gets at the end of the day,” said Lucian Bebchuk, the director of the corporate governance program at Harvard Law School. A central flaw of governance is that boards of directors frequently are ornamental and provide negligible oversight.

As Warren Buffett has said, “in judging whether corporate America is serious about reforming itself, C.E.O. pay remains the acid test.” It’s a test that corporate America is failing.

John Kenneth Galbraith, the great economist, once explained: “The salary of the chief executive of a large corporation is not a market award for achievement. It is frequently in the nature of a warm personal gesture by the individual to himself.”

The comment that “our broad national problem is rising inequality” is right on. And the CEO pay is making it worse and it is at the expense of the people working to provide the products and services and those that consume them. Eventually they are tapped out. It is like a farmer overcultivating his fields, eventually they stop producing quality crops.


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