I just googled "ceo pay explanation" and found that there are two arguments:
1) ceos and managers are greedy and are able to float their own boats
2) ceos have "general skills" that are useful to a wide variety of companies (e.g. Mullally at Boeing and now at Ford), and these general skills are hard to come by and must be purchased.
It seems typical to me that contentious issues usually have two sides, neither of which is right. Like radical environmentalists vs. those who "been on this land a hunderd years" and "know best".
It's obvious that ceos are greedy. Everybody is greedy (as mentioned in the googled articles). That doesn't explain the rise in their pay. They've always been greedy. However, there has been a consensus in the "managerial class" that you gotta pay big bucks to get talent. This has been the reality. It's maybe similar to the big bucks people felt they had to pay for tech stocks in the late 90's. I think it's a cultural bubble that will burst without any of us getting too excited. I can hear it bursting right now. There's no free lunch, except for executives in this boom whose lunch was paid for by taxpayers/shareholders/joe blows who are are starting to feel much stingier.
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As you say, the reasons for the vast increase in compensation are surely more complicated than simple greed. I wonder if the increase in the percentage of stocks held in mutual funds might be involved. Mutual fund shareholders don't watch the shop for individual companies like a direct stockholder would.
Also, as long as stocks were rising, no one complained very much about how much the CEOs made. It's only when the stocks are tanking that people squawk loudly... Paying someone 20 mill or so to destroy a company doesn't seem right somehow.
eric,
wall street, where it pays to fail:
lehman brothers investment bank went down last week.
ceo, fulds, who drove it into the dirt, took 5 yrs of salary worth= 1/3 billion dollars with him.
did they get the best talent money can buy??
should he walk away from the smoking remains of a 150+ yr old bank with 1/3 billion??
it would be safe to say that no other Lehman ceo came near this kind of compensation.
yet ironicaly this is very ceo who ruined the company.
what is wrong with this picture.
fulds clearly failed to exercise his fiduciary duty yet was rewarded like to other ceo in the company history.
our free economy is free of accoutability too.
in fact it seems the reward is inversely proportional to the performance.
americans need to recover those fraudently obtained salaries to pay for the damages.
what do u think?
steve
Well, there was nothing illegal about the ridiculous salaries. I guess that in the future, boards / shareholders will hesitate when preparing to shell out such big bucks to frauds. Too bad that regulations weren't in place to prevent the (self-inflicted?) shafting of the innocent.
eric,
well constructed in so few words!
last line states folks getting stingy.
but as i think, it occurs to me that folks should realize that it was stock options offering the ceo the potential to reap 100's of millions in quick payola which resulted in ceo's initiating company policy changes calculated for rapid and dramatic price increases in order to max ceo option reward.
long term price stability was sacrificed for short lived burst in price.
like the tortise and the hare.
so there is a massive disconect between the interests of stock holders planning for retirement and the ceo whose payoff date is calculated by the ceo for "x" months. but only the ceo and board insiders are privy to the "x" figure.
this explains how the ceo gets the gold and why the average worker saving for retirement got the shaft.
could the system be rigged in favor of the house?
and why would the house change?
we need a worker rebellion to take back the stolen $ and to stop this repeated shafting in the future.
uncle steve
Uncle Steve,
That is a good point that stock options were at the root of the theft. I guess the lesson here is that people should be damned skeptical of owning shares in a company that compensates executives with stock options.
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