Just last week I wrote about executive salaries and compensation on this blog. I think it is important to revisit the issue in a sense. Last week in preparing my piece on pay czar Kenneth Feinberg’s decision to cap executive salaries among the largest TARP recipients I came across some disturbing but interesting data. I run across data containing the total compensation packages for the top ten (10) highest paid CEO’s and executives in 2008, in terms of salaries, bonuses, stock and options. It forced me to ask myself a question. Are these individuals, all males by the way, really worth what they are getting paid? The answer is NO! This is just my humble opinion. I thought that I would share the list of the ten (10) highest paid American CEO’s with you. Here goes the list:
Individual: Company: Total
Compensation
Package:
1. Sanjay Jha Motorola $104.5 million
2. Larry Ellison Oracle $84.6 million
3. Robert Iger Walt Disney Co. $51.1 million
4. Kenneth Chenault American Express $42.8 million
5. Vikram Pandit Citigroup $38.2 million
6. Mark Hurd Hewlett-Packard $34 million
7. Jack Fusco Calpine $32.7 million
8. Rupert Murdoch News Corp. $30.1 million
9. David Cote Honeywell International $28.7 million
10. A.G. Lafley Procter & Gamble $25.6 million
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Professor Grant:
ReplyDeleteAny time anybody spotlights executive compensation, the immediate answer that comes from the leadership of the corporations paying the exorbitant compensation is "we need to pay significant dollars to keep the talent here."
Also, you hear the argument that "professional athletes and actors make similar money, so what is the big deal"? How do you respond to these justifications for paying $104.5 million or $84.6 million to the CEOs of Motorola or Oracle?
Anonymous,
ReplyDeleteThank you for your comments and questions. I agree that executives and corporations often respond to the salary issue by noting that the issue is attracting, retaining or keeping the best talent. Depending on the industry, I think that this first justification is often dubious and unsupported.
On the second issue you raise, corporation's often say that athletes and actors get paid similar salaries to perform their jobs. So, what is the big deal about paying executives millions of dollars to perform their tasks? I think that the second issue you raise is a larger societal issue or question we must all come to grips with at some point. In my opinion, we must pose several critical questions. Who are the most important people in our society in terms of their impact, legacy, and the value to society that they add? I'm sure that we might agree or disagree on whom htese individuals might be. When we live in a society that chooses to pay athletes, actors, and executives millions upon millions of dollars, what does that say about the priorities of our society?
If I ruled the world and called all of the shots, I would certainly redirect priorities. I would pay the people who educate, nurture, influence, and care for our children the highest salaries. In my humble belief, their job is the most critical in society.
When we look at the pay of the Motorola and Oracle CEOs I have a hard time seeing why or how they get paid so much. If you look at the stock price and overall shareholder value their salaries are questionable to say the least. I think we have to find some way to give or transfer some power and discretion to shareholders, away from the board of directors, to have a larger say in setting the limits and boundaries of executive compensation. I have been giving this issue a great deal of thought and debate in my own mind recently. I think that state government, through corporate law at the state level, could potentially have significant say in this regard moving forward.
Thank you for raising some timely and tough philosophical questions. I appreciate your thoughtful comments and questions.
In my opinion, we must pose several critical questions. Who are the most important people in our society in terms of their impact, legacy, and the value to society that they add?
ReplyDeleteI'm quite certain that Bill Gates' impact, legacy and value to society - like Andrew Carnegie's - will be much greater than Michael Jordan's or Joe Montana's. That is not to say that athletes and stars are not entitled to the compensation they receive, just the opposite, their compensation is based on the demand for the service they provide, regardless of the lasting impact it has on society.
When we live in a society that chooses to pay athletes, actors, and executives millions upon millions of dollars, what does that say about the priorities of our society?
Society does not pay these people anything, they are paid by private shareholders. Society benefits from the goods, services and employment that these companies provide.
I think we have to find some way to give or transfer some power and discretion to shareholders, away from the board of directors, to have a larger say in setting the limits and boundaries of executive compensation.
This statement makes absolutely no sense to me. It is, in fact, the shareholders who elect the board of directors, either directly or indirectly. In most cases, large mutual funds and pension funds, acting in the interests of their shareholders, nominate and and vote for these board members. In many cases representatives of these mutual funds and pension funds occupy seats on the board. The increase in executive compensation over the last decade or so can be directly tied to these funds insisting that executives be paid in stock and stock options so as to tie their interests more closely to the shareholders.
"Society does not pay these people anything". Nice to know that corporations exist in a society free void without moral or social cosiquences.
ReplyDelete"In many cases representatives of these mutual funds and pension funds occupy seats on the board." In fact, no one on the board of directors of any large company has any obligation to any of the executives. Board members always keep the shareholders first and don't ever get compensation for slavishly following the wishes of the people who put them on the board. Stock options are never used to guarantee huge payouts even if the stock does not perform.
This is why big corporate America is doing so well. I suggest that you invest in Enron or Lehman or GM. Banks are also a good bet. How about "Morgan Stanley, which earned $1.7 billion last year and received $10 billion in bailout funds, handed out $4.475 billion in bonuses, nearly three times their net income." or "Citigroup and Merrill Lynch lost a combined $54 billion last year. They received a total of $55 billion in bailouts and paid out $9 billion in combined bonuses."
First of all, let me say that I’m supportive of the new proposals that mandate restrictive measures to limit executive pay in companies that accept new bailout money. There are loopholes that I’m sure smart guys will be able to finesse a bit, but for the most part it limits the compensation of senior executives working in such firms to $500,000. Now, this may seem like a lot of money to people a majority of Americans but not for the average executive. Their argument is a restrictive pay structure will drive out talent and my answer to that is what other company in its collective right mind would pay more than half a million per year in base salary to someone whose track record consists solely of running a multi-million dollar company into the ground. My issue is what happens when a company returns to being profitable and the upside reward for success is not the problem so a salary cap may not be the solution. So until bailout funds are paid back the Government I think should restrict pay on the executives that currently run those companies. And maybe just maybe until those funds are paid back we will see executives motivated to head these bailed out firms by something other than money.
ReplyDeleteThe problem is that these corporations have no correlation between salary and performance. The salary that these CEO's does not even scratch the surface on their incidental benefits either, such as vacations, private jets and other expenses that are paid with corporate funds under the infamous heading "miscellaneous expenses." While a salary cap structure may or may not actually be feasible, incentives and bonuses could be regulated more easily. More transparency in accounting and a more active voice from shareholders would be a start. Flawed incentive structures and lack of corporate social responsibility have created a rift in corporate efficiency and it should come as no surprise that some of the most inefficient companies have their CEO's on this list.
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