How much money should a CEO make?

By Andrea Karim on 8 August 2008 (Updated 26 April 2010) 48 comments
Photo: Fat Cat

Ah, to be the head of a large American corporation... can you imagine what life must be like at the top

  • In 2007, the CEOs of large U.S. companies were paid in one day what the average US worker makes in an entire year. With an average pay of $10.8 million annually, over 364 times the pay of the average American worker. (Looking at median pay, however, brings the pay ratio closer to 179 to 1.)
  • CEO pay has increased 45% in the past ten years. Contrast this with the fact that the federal minimum wage increase, which just went into effect, gives bottom-rung workers roughly 7% less money, in real terms, than they were making a decade ago.

Is this fair? Is it just?

I myself am ambivalent on the issue. On one hand, in a capitalist society, there really isn't any limit to how much money a person can earn, technically. And there are many cases in which the CEO of a company actually conceived of and founded the company - shouldn't such an individual have the right to make oodles of money from his or her ideas? After all, some of the biggest companies in the world were started in someone's garage or home office.

On the other hand, many of the CEOs at big US corporations did not build the company from the ground up. They might be immensely talented individuals, but do they deserve to be paid over $10 million a year, to say nothing of stock options, and perks like use of the company's jet?

What about poorly performing CEOs? And severance packages? How much should companies pay a CEO to leave? According to the Kellogg School of business, leaving a company can be as lucrative as heading it up. Look at the severance packages for the following ex-CEOs:

  • Robert Nardelli (Home Depot) - $210 million
  • Michael Ovitz (Disney) - $140 million
  • Stephen Hilbert (Conseco) - $72 million
  • Carly Fiorina (Hewlett-Packard) - $21 million

Is this money well-spent? Anyone who runs a small business in middle America would tell you that it doesn't seem logical to give more money to someone who is performing poorly just to make them go away. Can you imagine firing, say, someone who works for your home cleaning business because they've done a terrible job, and offering them several thousand dollars to never work for you again?

There are a number of economic factors that play into these scenarios, usually involving risk and stock volatility (a good but oddly apologetic article on the issue can be found here). Compensation packages are often meant to help protect the reputation of a departing CEO. According to the Kellogg School, "Research also suggests that companies offer incoming CEOs a greater amount of ex-ante severance pay when requesting a confidentiality agreement."

I'm trying to fathom what this really means. As someone who has signed countless confidentiality agreements without ever getting access to the coporate jet, what gives CEOs the impression that their discretion can be bought? When Fiorina left HP, her compensation package included "financial counseling". What kind of counseling do you need when you're walking away with $21 million? Put it mostly in savings?

Publicly-traded companies are run by corporate boards who determine a CEO's pay and benefits. Board members are usually experienced leaders from other large corporations whose expertise is called upon. However, many corporate boards comprise members whose individual goals often include becoming CEOs of major US firms themselves, so it is in their interest to provide lucrative (or excessive) compensation packages to the chief executive officer.

This has raised the question as to who, exactly, should decide how much a CEO makes? What if a company's employees had the right to vote on a compensation package for their leaders? Should a company's shareholders have a binding vote? Should there be a cap on how much an individual can earn?

I have no easy answers, but the question has been weighing on my mind as of late. What do you think?

3
Average: 3 (6 votes)
Your rating: None
ShareThis

comments

48 discussions

Add New Comment

CAPTCHA
This test helps prevent automated spam submissions.
Guest's picture
kepstein

The key issue is not the amount of money, but what the CEO is being paid for. CEOs in their current form have no accountability. At most, they are paid based on short-term goals that aren't in line with the company's long-term success. And in the average case, the board just throws truckloads of money at them no matter what they do.

In a slightly better world, their pay should have a large risk/reward element to it, just like an investor. Worker bees like us are paid <100k mostly to show up and do what we are told. Executives are paid--or should be paid, in theory--based on tangible results.

I don't see a problem with paying a CEO for good long-term results, so long as he is proportionally penalized for bad results.

Under the current model, a CEO's compensation has no motivational downside. Even if he is forced out in shame, he still gets away with several million.

Guest's picture
Guest

CEO's try much harder than the average american worker, so they therefore deserve much more. They work hard for their money and you shouldn't critisize them for what they do because they work hard at it. If its unfair, why don't you become a CEO? it's harder than it looks.

Guest's picture
Lucille

I think it is Sweden that has a cap on CEO pay where they can't make more than 20 times the wage of the lowest paid employee. That sounds reasonable to me. For all of the excuses I have heard why CEOs should get some of the insane pay packages I have yet to see one that holds water. Hours, skill, risk? Most CEO's put in on average about the same amount of hours as some of the mid level management that gets overworked to save the company money. Skill is relative, many CEO's ruin a company yet get picked up in weeks by another one and given another big compensation package. MBA programs are churning people out in large numbers every year, it is not like there is a shortage of aspiring CEO's out there. Risk is pretty much nil unless they get caught red handed being involved in illegal activity. Most of the time someone lower on the food chain gets blamed and goes to prison while the CEO claims to have not known it was going on. Since the compensation packages more recently involve no financial risk and almost always a sweet golden parachute there really is zero risk even if your a total screw up or a crook.

Many people keep touting the free market even in the face of how out of wack this is. Companies keep cutting employee pay and raising prices, you rarely see a CEO take a pay cut. So in a way we are all paying for this through higher prices and eroding wages. It has become so out of hand and so systemic we really have to set some rules because just about every large company is operating under this model, there are no other options to pick from.

Guest's picture
ramona silvestri

I coined a name for your wonderful informative on how Sweden has a cap ...so vital today for the US CEO to look in the mirror and be able tosay " I do right by all!" you know what I mean. Full Circle Waging should be brought into legeslation to remedy more future collapses. Controlled Accountability Project; puttting the CAP on Greed.

Guest's picture

It was a warm spring morning in Oakwood Forest, and entrepreneurship was in air. Bear and Fox decided that today would be a good day to start a company.

Bear hired ten squirrels for his company and made one of them CEO. He paid both the worker squirrels and the CEO squirrel one acorn per day. Fox did the same thing, hiring ten squirrels (nine workers and one CEO) and paying each of them one acorn per day.

Business was split equally between the Bear's company and Fox's company.

Business continued as usual, until one day Fox had a brilliant idea. He decided to pay the CEO squirrel 10 acorns per day. The CEO squirrel didn't do any more work than he used to. He just got fat. But the other squirrels started working like crazy! They came to work early, ate lunch on the job, and worked late into the night. Some of them slept at the office. Others stopped going on vacation. All of their squirrel spouses grew quite upset and most of the squirrels working at Fox's company had sad squirrel divorces. All to have a better chance of being picked as the next CEO. But business was booming and Fox's company, with its highly productive worker squirrels, drove Bear's company out of business.

This is called "Tournament Theory" and it explains why CEOs (and Partners, upper management, etc.) are paid so much more than average employees.

Moral: pick your own acorns.

Guest's picture

The idea Lucille mentions as part of the compensation picture in Sweden strikes me as right, fair, equitable, and just plain sensible. CAP a CEO's pay at no more than 20-25 times the pay of the lowest or even average worker at that company. If you're going to give incentive bonuses to the bosses, give them to the workers too... who do those bosses think puts that money in their pocket!

Guest's picture
Juggler314

The real problem is that CEO's of large corporations have zero vested interest in actually doing anything. I work for a small company, my boss has his entire life tied up in the company. If it fails, he is going to be in a world of hurt. He works harder than most people and is far fairer to his employees than most people I know.

CEO's should always have a financial vested interest in seeing the company do well. Here's a perfectly reasonable idea - make the CEO stake 1/2 his net worth on the company, if the companies stock declines, he pays for it out of pocket up until 1/2 his net worth. If it does well, then he can take some sort of consumerate pay out of the company.

The other problem is that the stock market is no longer driven by real economics, but this whole numbers chasing games. If a stock is "expected" to profit 23 cents/share, and it actually only manages 22 cents/share that quarter, does that instantly mean the company should be worth 22 billion less dollars (to use an extreme number). No, the company should have a market cap that is in line with realistic intrinsic values, if they don't do quite as well, the stock should decline a bit, and if they do slightly better than average it should rise a bit. But nowadays stock prices can slash serious bits of market cap off or add to it just on the most benign news - silly.

Guest's picture
David

Since this is still America, i think that it isnt your business how much company's charge for goods and services or how much they pay their employees. Their company, their money, their decision.

Why dont we put a cap on all salaries? Why dont we all just get paid the same, live in houses with the same square footage, wait in line for bread?

Hey, maybe we could decide how many kids they can have too!

Xin Lu's picture
Xin Lu

hmm.. I don't think capping a CEO's pay at 20 to 25 times of the lowest paid employee would accomplish anything besides making that lowest paid employee feel bad. There are also lots of ways to get around a capped salary. For example, Steve Jobs & Google CEOs technically do not draw a huge salary (I think Jobs has a $1 salary or something), but they have a buttload of stock options to pad their pockets.

As to fairness, I think these pay packages are a product of free enterprise so there is no point in crying foul. Each person's job has a pricetag and people get paid what others are willing to pay for them. Technically CEO compensation is supposed to be approved by a company's board. So there is some voting that is done behind doors, but most employees do not get to participate. Most corporations are not democracies, nor should they be because if too many people get involved in making decisions then nothing gets done. Hell, just look at the United States government. The role of a CEO is to be a dictator, and as is with everything, there are good CEOs and bad CEOs. The good ones are amazing and provide jobs for hundreds of thousands of people and create wealth greater than nations (e.g. Bill Gates & the Johnson family of Johnson & Johnson). The bad ones fail and get ousted. That's life in a capitalistic society.

As to David's comment about putting a cap on every income and deciding how many kids people can have.  That happened in China.  I am an only child because of the policy there and everyone had the same assigned housing in the same condo complex where my parents worked.  So as I said in my article about rich being evil, "the last thing we want is a society where everyone is forced at gunpoint to be equal on every level."

Guest's picture
Juggler314

I don't think Xin Lu or David really read the article. One point made is that the compensation committees are filled with people who have a hugely vested interest in paying CEO's gobs of money (the few examples of low paid CEO's are mostly publicity bits). The members of these committees hope to someday reap these benefits themselves and/or they will see their own compensation rise due to being "nice" to the CEO.

Also it may be a free market, but if I buy a few shares of a big company I can do absolutely nothing about these pay scales - why do you think 99% of all shareholder initiatives fail - the major stockholders also play the same game, the institutional investors that hold the majority of a companies stock are never going to vote to lower CEO pay - these hedge funds and mutual funds function the same way, the people that run them collect huge salaries...

Guest's picture
David

I read the article. It seems to me that the point is the ridiculous salaries that CEOs make and what should be done about it.

Nothing. It is none of our business, it is not our company. One could argue that it is the shareholders company, but if they dont like the decisions the company is making they can sell. The shareholders are in the game to make money, the CEOs are in the game to make money, and the board is in the game to make money. If they find and easy way to do it, more power to them.

PS: in my original message, i did not mean to put an apostrophe in company's, i meant *ahem* "companies"

Andrea Karim's picture

I didn't actually propose capping salaries (I had considered the Steve Jobs example), and I do believe in free enterprise, but I'm also stuck on the notion that just because a few very rich people are happy keeping themselves and their friends rich doesn't mean that it should be allowed, especially when a CEO has failed miserably at the task at hand.

Most corporations, of course, are not co-ops, so the employees don't have a say in their CEOs pay.

Also, the example of telling people how many children to have is a disingenuous comparison. Private familial units are different, both in terms of the law and our culture, than a business that is publically traded on the stock exchange. However, it's not like we don't have laws governing society that affect family - polygamy, for instance, is illegal.

The point of the article was to provoke discussion, not to say that one thing or another had to be done. The CEOs that I have worked for over the years have been compensated in a reasonable manner, and are almost always the founders of the company - men and women who work themselves to the point of exhaustion to get a business off the ground. I wouldn't begrudge them the money they've earned.

Guest's picture
Wimsey

I live in Sweden and there is no such thing as a cap on CEO salaries here. Good idea though.

Xin Lu's picture
Xin Lu

Umm.. I did read the article, and yes, board members all have agendas of their own.  Individual investors usually own very little of public companies out there so as a result they have no voice.  There is nothing unfair about that.  Even the institutional investors do not own much of public companies because each mutual fund own a tiny sliver of the shares. 

You forget to mention that oodles of companies are private, and that means that CEO compensation isn't even  publicized in those companies. Noone seems to be complaining about those companies.  So I agree with David when he says that it should be up to the businesses themselves what to pay their leaders.  

Andrea Karim's picture

I couldn't figure out how to discuss private companies since, as you mentioned, the compensation isn't public. And the companies that I have worked for in which I knew the CEO were private. I'd have a really hard time estimating what they make as a salary, but I'm going to guess it wasn't 100 times what I made.

But who knows? Maybe one day those companies go public, and the CEO makes a gigantic salary.

Xin Lu's picture
Xin Lu

I've worked for private companies ever since I graduated. I knew a couple of the CEOs' compensation because they talked about it in company meetings. It wasn't excessive but these CEOs were founders and owned large stakes of the companies. So when there were stock dividends we all knew the CEO was getting a hugeass check. I didn't think that was unfair. Additionally, some private companies are already huge so all this talk about public stock shares and votes are moot. (See this list here: http://www.forbes.com/2005/11/09/largest-private-companies_05private_lan...) I wouldn't be surprised if these CEOs are paid just as well as the public companies' CEOs since they're all running large operations and all companies are competing for great leaders.

So once again the bottom line is that CEOs should be paid whatever companies are willing to pay them.  That's free enterprise, and restrictions on compensation is not.  

Andrea Karim's picture

Well, if we were an entirely un-policed capitalist society, I might agree. However, there is legislation that tries to prevent corruption and illegal activities, and this directly affects our businesses. Anti-trust legislation that (supposedly) prevents the monopolization of an industry by a single company can be said to hamper free enterprise, but they are still a part of our (mostly) capitalist system. Restrictions on compensation can be thought of similarly, if you want. Anti-trust laws prevent monopolies that lead to price gouging; salary caps could (arguably) narrow the income gap between the rich and the poor. Well, even as I'm writing that, I don't truly believe it; I imagine that the response to a cap would be more psychological than anything.

It's not moot to talk about shareholders having a say in a company's management just because there are private companies who don't accept cash from individual investors on a stock exchange. Also, just because a shareholder owns a very small piece of a company doesn't meant that they don't have a great deal of personal wealth invested in it. It's tough for me to know how much of a say shareholders should have in a company's management, though, as I never really pay close attention to my investments.

I actually think that stock compensation might be one of the more logical ways to reward performing CEOs. If a company is doing well, and their stock goes up, they win big, right?

Guest's picture
Lucille

This is why I try to not give business to companies that are really abusive in this regard where the CEO is grossly overcompensated and the employees are treated poorly and underpaid for their job category. If I know this information and have a choice I will go with the company that has better policies toward the employees and less focus on artificially inflating their stock that others. It IS my business if I am a customer or in a business relationship with a company. I would rather not give my money or assistance that have what I consider rather corrupt business ideals. Those being treat your employees like garbage, pay them as little as you can possibly get away with, and try to rake in as much cash as possible as job one and above everything else.

Sadly, it has become harder these days to find companies that give a darn about their product, their customers or their staff.

Guest's picture
anonymous

The company I work at, which is very small. I make more in actual salary than my boss...true he owns most of the company, but he still pays at least one of his employees more than himself!

Andrea Karim's picture

Interesting that Bechtel was on the top-ten list you linked to, Xin. I wonder if they would have a better reputation if they disclosed their finances?

Guest's picture
Anna_esq

I don't think we should put a "cap" per-se on CEO salaries. If they bust their hump to build (or expand) their company, they deserve a good salary. However, I -DO- think we need to crack down on a lot of the games corporations pull to shift money around at the top. Why should bridges fall down, seniors have to deal with a "donut hole," and children get substandard education while corporations and CEO's pay less taxes on their income than their secretaries (Warren Buffet's comment).

Legislation such as more minority shareholder say in CEO salaries if the company is publicly traded, IRS crackdown on CEO perks such as use of the corporate jet, and refusing to allow companies to write off the salaries (and perks) of CEOs for tax purposes above a certain income threshold would help discourage excessive CEO compensation. The FTC should also make it illegal to "buy silence" with golden parachutes as shareholders of publicly traded companies should have the right to know why CEO's really leave, and the golden parachute should not be tax deductable for the corporation. Also, the FTC needs to step up enforcement of shareholder laws when CEO's pillage a company, then leave.

As for "free market" proponents, I suggest they read the minutes of the first and second Constitutional Congress before they tout this problem as part of a "free market." The founding fathers loathed corporations because of meddling by corporate enterprises such as the East India Tea Company (tea party, anyone?). Corporations were illegal for the first 50 years of our nation except for the rarest circumstances until the 1830's. The whole "Andrew Jackson/Bank of the United States/impeachment" thing was pushback by the big business interests to make Corporations legal as soon as the founding fathers started to die off. It wasn't until the 1870's that Corporations gained full "personhood," and the result was the Robber Baron monopolies of that era. I suggest people actually -read- Adam Smith "The Wealth of Nations" and his position on these matters instead of quoting the rehashed misquotes printed in modern MBA books and toted by so-called "free market" advocates. You'd be amazed at what the father of modern economics -really- says.

Never at any time in our history, except the Colonial Revolution and later when Teddy Roosevelt took on Standard Oil, has our American economy been so out of whack. It upsets me that so many otherwise intelligent people walk around quoting policies based on economic theories nobody's actually ever read in it's entirety. Please people ... go to the SOURCE.

Guest's picture
Rob Caminos

Well said Anna and BTW anyone that plans on buying "The Wealth of Nations" should read "The Theory of Moral Sentiments" first (you can get both on Kindle for less than $2). The amount of tax deductions that corporations can make is fiscally irresponsible. No wonder every state in the Union is broke. I can only assume that these deductions are the result of generous campaign contributions.
But the original issue is over CEO salaries and to that I say 'keep the guns out of it and let the market handle it'. I was recently downsized from a major corporation and only now do I realize how bad things have gotten for all of us. We've stopped making things and are only focused on driving up stock prices. With so much downsizing, people are starting to realize how broken the current business practices are, and are starting their own companies. CEO's that are getting absurd compensation packages are free to continue doing so but I suspect one day they will realize that no one with any brains or ability is willing to work with them anymore.
We are on the verge of a Human Resource revolution where people want a better way of life. My hope is to start my own company soon and when I do, no matter what field I go into, my primary business will be to attract and retain, and improve the best people in that field. By focusing business on the staff, the staff can focus on the real business, which is what you hired them for in the first place. Imagine the profit potential of everyone in a company driven towards the success of the company.
And before I get off my soap box I just want to state for the record that I will never work for a publicly traded company again. I believe there has to be a better way of building a company than to hand it over to people who care nothing for what the company produces. I will never allow my mind to be a slave to Wall St. ever again.

Guest's picture
Rob O.

Doesn't it seem odd that the "CEO" of America - a.k.a. the President - makes nowhere near the kind of money that even lesser-paid CEOs often make? Something is terribly askew when the CEO of, for example, a county hospital in a city of roughly 100k people earns more in raw salary (to say nothing of addt'l perks & compensations) than the President of the United States?

Of course, we should also address the issue of the flabbergasting amounts of money that professional game-players - a.k.a. atheletes - earn. But I can at least choose not to buy insanely-priced tickets or the wares hawked during televised sports events and thereby have made some move to not pad their pockets with any of my money.

Guest's picture
wildgift

There are multiple problems going on here.

First is that stockholders in a company lack the power to control the CEO's pay. The people who might have been the people to say no, like bankers and possibly labor reps, aren't present. Penny-ante shareholders who wring their hands at the CEO's paycheck should learn to shut the hell up and count their meager dividends from their 100 shares of stock. Corporate democracy is one dollar, one vote.

Second, some CEOs do have a stake in the company, because they're kind of like banks. They have a lot of capital that they invest in the company, by purchasing the stock.

Third, lately, it seems like capitalism is just a big cartel. In order to participate, you need someone to get you in with the "in crowd." So you need the CEO to keep you in the game. With billions of dollars at stake, why waste money on a no-name CEO who can't get a phone call in to anyone important who can invest in the company.

Fourth, it's the job of the CEO to treat the workers in whatever way it takes to get them to perform at the highest productivity for the least cost. If that means paying lobbyists to get Congress to decimate labor laws, then, the wise CEO will budget for that.

Fourth - our CEO President and VP have done quite fine with the country. They've helped steer the ship of state in the direction of larger profits for the oil companies and private armies.

Sixth - people talk about CEOs "working". They aren't paid to "work". They're paid for their connections and decision-making leadership. Their leadership isn't about "leading" per-se, but making decisions that put the corporation in the proper alignment with other corporations, to avoid unnecessary competition and conflict that can reduce profits. It's about moving in the right direction to enter and dominate emerging niche markets that have been defined by the small businesses.

"Reward for hard work" is an ethos that's taught to the serfs and peons in our economy. The CEOs are more like princes and kings, valued for their power and not their labor. Justifying their pay based on their "hard work" is total bullshit. There's no way an exceptional human being can be 300 times more productive than the average human being.

Does a fast runner finish the mile in 1/300th of the time it takes you? I don't think there's anyone running the "1.4 second mile".

Can a graduate of Evelyn Wood read a novel in two minutes? Can a super-bricklayer build a wall in three minutes?

No, and no.

A better example is the difference between a jet plane and a pedestrian. A pedestrian walks at a leisurely 1 mile per hour. The jet plane flies at 600 miles per hour. The CEO is like the plane. The CEO is an aluminum tube filled with tubes, computers, fuel, and human cargo, kind of like a slave ship. Except it's more like one of those giant anime robots, with a guy in the big robot, controlling it in a battle against another robot. So the CEO is like a giant anime robot, slave ship, that moves at 600 miles per hour.

And, you're a pedestrian.

Guest's picture
Lee Hall

I think you need to divide the CEOs into 2 groups. One group, where the CEO started or toiled from scratch. Those CEOs certainly deserve whatever they want, since it is their efforts that made the company what it is.

The second group, "walk in" CEOs, are certainly undeserving on such exorbitant salaries. They are paid this way because it is an image game to the corporate board. I bet you that one can find CEOs cheaper and just as good to run the company, but the corporate boards refuse. They want the best because they think they need best to get the same job done. The truth is that this knowledge that can be found in the overpriced CEOs can be found in an abundance of under priced CEOs.

So what you see is the corporate board showing they can spend more money than the next company to find overpriced talent, just as they would to find an much wanted athlete. And since everything trickles down to the bottom line, good luck finding cheap tickets at the next football game (if you know what I mean)

Guest's picture

A CEO should be able to make whatever they can convince the board members to give, plain and simple. Now, it comes down to stockholders holding the boards accountable for their decisions. If the CEO is not worth what he is being paid, in your opinion, then hold the board accountable. If you are concerned about a specific company, get some shares.

I, however, have a beef with large severance packages. At the absolute most, these CEOs should get six months worth of base salary, and they should be held to the same rules as other employees when it comes to vesting of stock options, etc. This is me speaking as shareholder, not a greedy hater of those that earn more than me (because that is not what I am). As a shareholder, an owner of a company, I don't want to reward someone for a lack of performance. It is as simple as that.

Guest's picture
Mimi

I can't believe the audacity of the commenter who talked about how much people should be "allowed" to be paid.

Hello! When the government gets to decide how much you can or cannot be paid as a privately employed person, we call that Communism. No thank you.

Guest's picture
Kelja

Who 'should' decide on CEOs' salaries? Certainly not you or the government.

It's like that numbskull of a congresswoman - Maxine Waters! She actually threatened nationalizing the oil companies. Yea, right, the government could do a better job! They'd have idiots like Water's running serious companies! Ha, it's laughable - no frightening because so many of you agree!

The owners - stockholders - can vote or sell their shares if they disagree with anything a public company does. Yes, even now, they still retain that freedom.

Never ceases to amaze me how many people - generally liberal thinking folks - who want someone, the big assed government, to tell others how to live their lives! The concept of government control really rubs me the wrong way.

But that's me. Call me revolutionary.

Vote Obama (and, yes, McCane, because he's a more centered liberal) if you want more socialism, more government control!

People, can you see which way we're headed?

Guest's picture
wildgift

The best way to reduce CEO salaries is to raise wages. Wages cut into the profits used to pay CEOs. With thousands of workers at a large firm, a $1 a day raise can cut millions of dollars into a CEO's pay. Force the bosses to hire the janitors as real employees who get health insurance, and not as subcontracted labor paid minimum wage with no benefits, and you'll find the CEO's pay's cut just a bit to pay for these janitors.

How to do this? When the janitors form a union, and sue the company to hire them as real employees, or demand more from their subcontractor, the desk-jockeys should join their strike.

Guest's picture

Personally, I think that a salary directly related to profits would be the best option. If I were deciding what a CEO's pay was for a huge corporation, it would be $100,000 (an easily sustainable living if that's all they made) plus 10% (or pick your number based on the company) of all profits. This way, they have money to survive on if the company was already posting a loss at the time of hiring, but the potential is huge. $1 billion dollar profit? I'd love that paycheck. $1 million dollar profit? I don't make $200,000.

This gives incentives for CEO's to perform well while not putting some artificial socialist CAP on their pay.

Guest's picture
wildgift

@compounding - you are too generous. How about two weeks notice and a cardboard box for their personal belongings? This is what many underperforming employees get as their "good bye".

Guest's picture
wildgift

If you created a high income tax bracket, say above $500,000, and taxed that at 85%, then some CEOs would pay much higher taxes, and opt to get compensated in other ways. They would have to be compensated with perks, like access to vacation homes, lots of free gifts, etc. The thing is, it's not really easy to give someone a $9 mil vacation home, and a lifetime supply of caviar. There's only so many hours in a day.

Guest's picture
Canuck girl

Whoa... Why is it that anything that could even be construed as sharing or limiting wealth is met with this kind of knee-jerk "we don't want to be like the evil communists" reaction? The Patriot Act and other limits on your personal freedom don't bother you so long as the government doesn't interfere with your ability to make lots of money?

I do agree that allowing the government to limit salaries in private enterprises is a bad idea. But as for the proverbial slippery slope, you're already on it.

Guest's picture

Many CEO's are closer to stealing money from companies rather than being paid to do a job. The problem of CEO's looting corporate coffers for their pay has been an increasing problem over the last few decades. Those that try and equate what is going on today with "pay" I find ludicrous. They are looting from the shareholders and others with a few cronies that go along so they can get a share of the loot. Good CEO's are worth a great deal of pay. But even the good ones are not worth anything close to what American CEOs have been taking from corporate treasuries. I have some posts on the topic: Tilting at Ludicrous CEO Pay, Overpaid CEO's.

Guest's picture

Every aspiring fat cat dreams of getting into the echelon where the gravy starts. They get some little dribbles around the upper middle management, but they start to develop a taste for the rich sauce. By the time they're a VP, and they're invited to the offsite resort meetings and the lavish customer golf tourneys and events, they're totally addicted. At this point they're ushered into the fat cat network. They'll keep getting lathered in money if they turn blind eyes and vote right to keep the others lathered.

Boards of big companies are headed by CEOs and other high ranking officials from other big companies. They don't balk at huge salaries during the vote because they probably have their own huge salaries that will get voted on soon.

Shareholders should get to vote a little more effectively on CEO comp.

Guest's picture
jimmy37

Many well-meaning misguided people believe that a CEO's pay should somehow be tied to the worker's pay. That is flat-out wrong. The CEO works directly for the shareholder. His pay should always be tied to his performance, both short-term and long-term.

The Board of the Directors are the problem. Instead of representing the shareholders, they have become rubber stamps for the CEO. These boards are incestuously interlinked - decisions are more like you-scratch-my-back-I-scratch-yours. Even directors from non-profits are not independent if they get donations from the company whose board they sit on.

If some PC board wants to tie the CEO's pay to worker's pay, that's their business. Regardless, we need pay for performance.

Guest's picture
Guest

The problem is that there is no real way for the average share holder to regulate what a board does which includes setting the pay of a CEO and/or their golden parachute provisions. Instead the real voting power is contained within large institutions and hedge funds which are more than happy to go along with the game so long as the company continues to beat earnings estimates.

Guest's picture
Suz

Ok, I think that people who put down the time, energy and talent to found companies that make new jobs for people and contribute positively to the economy should be allowed to make whatever is reasonable so long as their lowest paid employees are still treated fairly. However, if someone is a hired CEO who didn't found the company they should be paid according to their contributions to the company, as any employee is paid. Thus, if they are doing a horrid job, they should be asked to leave ASAP and not given any $$ to compensate for that.

-Suz

Guest's picture
michael

Want to pay the CEO big bucks -- fine, AS LONG AS THEY PERFORM. When a CEO can cut the stock price in half and walk away with $20-million+ (like Carly Fiorina), the board -- who approved all this -- should be held responsible, either by reimbursing stockholders for the exorbitant salary they okayed, or by re-opening debtors' prisons.

BTW - Articles like this tend to express CEO pay in relation to the average worker. This is incorrect. CEO pay should be expressed in relation to the corresponding increase in the value of the company during their term in relation to the overall economy -- kinda how broker bonuses are tied to their performance vs. the Street.

CEOs who create billions in wealth for shareholders deserve a massive payout.

Guest's picture
wildgift

All this anti-CEO sentiment doesn't add up to anything if we, the people, can't get it together to support terrorists who will kidnap CEOs and force them to change their ways.

Guest's picture
Guest

The problem is that all the little workers get shat on working their butts off while the CEO makes gobs for playing golf and making friends with other CEOs. I know these people have responsibility but that seems to be a small percentage of what they do.

I think capping CEO pay to a multiple of their least paid worker encourages companies to spend more making those that actually make the company money happier thus spreading the wealth around rather than concentrating it at that top 1%.

Pure market capitalism, contrary to the remark about government regulation being communism, is something no one wants to see. There is a happy medium. We don't want the corporations controlling everything and we don't want governments doing that either.

It seems that these entities created purely for the purpose of shielding responsibility and maximizing profitability have a hard time regulating themselves. "Let the market decide" is often the battle cry of so called capitalists but they "own" so much of Congress that the second their mistakes start to hurt they ask for a bailout.

Now who's acting Communist?

Guest's picture
ramona silvestri

CAP should be a vital new approach to ensure the lowest paid employee has a chance to build a future. This business model will survive whatever the markets choose to do based on the fact that the leader- CEO has given fairly back into the precise system that has allowed his/her wealth, causing balance and confidence in the total system. When asking what went wrong with our society and business markets and the trickle down of suffering to main st. you must take a look at who is at the top. Congress should ask the CEO's directly during meetings "how much personal wage did you make in 2008?" and Secondly "How much did your lowest employee make? These 2 questions will answer most of what many Americans are wondering. Cycles of markets based on ten year shifts shows some of this is normal however the chain of events that lead to collapses in markets must be analyzed and avoided and a CAP should be seriously examined and implemented, overseen and presented by Our US government which has done it's best so far to "rescue" the markets. I wish US all the best! Best in behavior that is!!

Guest's picture
Guest

The last comment about CEO's working harder than the average worker is bull. I don't care if they work harder than the average worker not a single one of them works 300 times harder. That would be impossible. I'll agree that they are much more crucial and important to a company but it still doesn't justify the salaries they are raking in.

Guest's picture
Guest

Shareholders should definitely have more say considering they are essentially the owners of the company. I know the CEO usually owns a large percentage of the stock in a company but allowing him to vote one his own salary is kind of a conflict of interest if you ask me and that goes for the board members as well.

Guest's picture
Alex85

I have thought regarding the CAP. I think it's a bit unevaluated. What about receptionist's salaries? If the CEO works 12 hours a day, then takes jet and flies to Beijing for the key-meeting with business partner, shareholders or whoever, then it would be unfair to pay the guy who sits in lobby and watches YouTube all day long 1/25th of the CEO's pay.

It's nice topic to read and thanks a lot to all of the guys who posted ideas and thoughts.

Originally I'm from Russia, long-running communist ideas producer and exporter, and we definitely don't want these communist's ideas again. It's just so bad so it will take pages to explain. In "equal" society everyone is treated as the worst person. Whoever you are - scientist who designed the superjet, space shuttle, ground-breaking technology or world-famous athlete - you are treated equally as your "comrade" Ivan, who is working in factory 8-to-8, takes couple of shots of vodka before he comes to work, and beats his wife all the evening after.

Actually the communism idea never worked as those communist tops were living in extreme luxury while the population itself was living in extreme poverty. And the KGB function was (in addition to exporting the communists ideas world-wide) to hide the truth from the majority of population to give a perception that everyone gets the same. People didn't like this. That's why this idea collapsed.

Sorry for the novel above. The point is, if you think you are treated unfairly and you think you "cost" more, then go to the market look for someone who will be ready to pay to you more. If there is none, so what you see is what you get. I think that's fair enough.

Andrea Karim's picture

No CEO works 400 times harder than the person who mans the front desk at company headquarters. Nice fable, though.

Guest's picture
GuestMichael Lemen

When I hear someone say they don't look at prices when buying something ...." I think How Selfish They Are", because prices WILL never go down as long as there are people who don't care what they pay ! Boycotts dont work unless there enough people doing it !In my mind I think anyone who doesn't care what they pay HAS GOT TOO MUCH MONEY!

Guest's picture
Guest

I also am a capitalist. I agree that companies should pay their CEOs what they want. However, capitalism still requires common and economic sense. We are in the worse economy in over 50 years. Many people do not have jobs, lost their savings or investments (as I have, try bank stock at 0.63 per share and a bank CEO making $390,000 per year) for a small bank. These companies could run literally without the CEOs. Progress energy is breaking people's backs now with security deposits (to home owners) while the CEO earns $4.2 million per year. I do not have to buy a Honda, or Microsoft products, but I do have to buy electricity. Truth is we live in a greedy world with PAC money paying politicians to look after the rich and taking our tax money to buy votes from the poor. How can anyone justify making in the millions per year? How many homes can a person live in, or how many pairs of shoes does one need?