IT Employment

How much is a CEO worth?

There's a lot being said today about how much CEOs are paid. John M McKee shares insight he gained as a former leader of a $1.6B company, how the US compares with other countries, and recommendations re: compensation programs.

Do most CEOs make too much? What's the best method to determine how much one is worth?

During very good economies, there's not a lot of grumbling about the size of the paycheck of the head honcho. Take the recent period, up to about, last May. Until then, it was fairly infrequent to see or hear much in the news about the compensation packages of most CEOs - with the exception of, say, the guys heading up the big oil companies. But during tough times, people start to get a lot more interested in how much the big cheese were making while their companies tanked or perhaps even disappeared.

The issue is especially interesting to anyone who's out of work because of those bosses' actions or who've seen their 401(k) accounts evaporate. This month, in the U.S., a lot of people will become even more interested because the 3rd Quarter fund reports get mailed out now. They will see firsthand what has happened to their savings plans and for the most part, they're going to see a big drop.

Additionally, it's maddening to know that an individual is making millions while you're being told that increases are limited this year due to a difficult business climate. It's especially tough to find out that a company paid millions to the big boss just prior to a bankruptcy or government bailout.

So how much is fair and how much is too much?

Typically in the US, and to a lesser extent in Canada, the "market" decides what most CEOs get paid. If competitors are paying seven figures and providing long-term incentive plans (LTIPs can often be worth more than the annual salary each year), as well as annual bonuses (typically up to 100% of their salary) stock, stock option plans (stock programs can also be worth more than the salary each year), and other perks like cars and club memberships - it's likely the board will authorize a similar compensation package for their CEO. Consequently, U.S. leaders are generally the best paid in the world, making, on average, 39 times more than the average factory worker according to the Washington-based Economic Institute.

In other democracies of the world, comp packages are less open to competitive forces and many companies have policies pertaining to how much one can earn in total. In my experience, such organizations often feel they are better or more humane than those driven by what they consider to be a "profit at any cost" mentality that devalues the worth of the average employee. Consequently, we see CEOs in France earning only 23 times that of the average worker. In Spain, it is only 17 to 1 according to the same study. An executive with one of Canada's largest HR firms told me that they routinely suggest the ratio of 20 to 1 when planning compensation targets for CEOs in that country.

From my perspective, as a good capitalist:

- I believe that the opportunity to increase one's earnings in return for doing a better job is a very sound motivator.

- I support the proposition that an organization must be competitive in terms of compensation programs when trying to attract and retain the best talent, at all levels

But, as a leadership coach, I counsel client organizations that:

- The culture of an organization can be at least as important as money when someone is considering joining a new employer or leaving it for another. Money usually doesn't trump a crappy place to work.

- The entire compensation program, that which addresses management and staff at all levels, must have a clear degree of fairness about it so that no one feels they're being screwed

I believe it's motivational for all levels of the management team to have visibility into every job's pay scales. Most people have a tendency to think those above them make less than they really do, and that those below them are getting paid more than they did at that level. Often they believe that people with similar titles in other departments are making more than they are. Having visibility into what everyone can make bonds the team and helps guide one in their career planning.

Not surprisingly, CEOs who are overpaid, when compared to the rest of the leadership team, don't usually like this approach. However, those who make a fair wage usually think it's a good, solid program.

Are you surprised?

john

Leadership Coach

About

John M. McKee is the founder and CEO of BusinessSuccessCoach.net, an international consulting and coaching practice with subscribers in 43 countries. One of the founding senior executives of DIRECTV, his hands-on experience includes leading billion d...

56 comments
Eddie, GH
Eddie, GH

I agree that CEO's should get all they can (and not 'can' all they get - that's just a play on words). The question of whether they deserve it or not is not one that can be determined by ratio ceilings without getting into a conflict with free market principles. However, it is obvious that for most companies that are not blue-chip companies - and which are 1st generation companies, the CEO is usually a major stock holder who prabably built the company from scratch. His total emoluments include end-of-year profit which could be far in excess of what he pays himself annually. He also has access to all the perks of the orgaisation. For such a CEO who has employed staff at the going rate, you cannot begrudge him for getting all he can. If he is a humane sort of chap, he is likely to share some of his takings with his staff at the end of the year. This is the case in a majority of companies around the globe. The problem arises when this CEO passes on his role to another who inherits the salary and the perks (and some stock options to keep him loyal). Then the heir appears an 'upstart' who does not deserve what he gets. And that is the case with most blue-chip and latter generation CEO's. And the US having the larger number of such companies will appear to pay CEO's much more than they deserve. It is a natural course of events - like demand and supply. If these blue chip companies could set remuneration benchmarks for latter generation CEO's, then the perception of fairness could be served.

boxfiddler
boxfiddler

what the guy on the line manufacturing the product is worth. No product, no CEO. Or any other C for that matter. etu

Cyclops116
Cyclops116

No CEO no line for the person to work on. Has anyone in this forum ever been in charge of anything?? Jeez Yes the CEO could go work on the line and do the job of that person but it doesn't work the other way around! No way in hell I'd want to do the CEO's job in my company!

HAL 9000
HAL 9000

Works the other way to in case you haven't noticed. :D :^0 :D :^0 Col ]:)

john.g
john.g

This article ignores the single most important fact. A CEO is only worth what the company can afford to pay to get the result that the position can realistically produce both in the short term and in the long term. In other words the pay should be commensurate with the performance of the company overall but not so much as to affect the performance of the company in the long term.

lastchip
lastchip

Especially, if they're the CEO of a bank! Even at 19x, one has to put this in perspective. They don't do 19x as much work. They don't work 19x as long (in hours). The bottom line is, average Joe has to work for 19 years (excluding inflation rises) to earn as much as the CEO does in one. Probably spending most of that trying to survive! Take the recent banking fiasco. There were City workers here in the UK, pocketing ??1m+ bonuses, let alone salaries. There are plenty of people here in the UK earning less than ??20k. So those people have to work 50 years (in most cases, struggling) to earn what a bank worker got in one years bonus. Can that be seen to be fair? Of course there has to be incentives, otherwise no-one would want to do anything, but these salaries have got totally out of hand and need to be cut back; sharply! I would suggest, there are plenty of average Joe's, that would be very happy to do their job for 10x salary, or even 5. If they don't want to work for what they see as low salaries, then bye, bye. See how long they survive.

Locrian_Lyric
Locrian_Lyric

He started his company in a single room rented out of an old schoolhouse. He took his life savings when he could have retired to employ a handful of people. Now, in his eighties, there are literally thousands of people, including myself, who are employed thanks to him.

HAL 9000
HAL 9000

That attitude is unacceptable now days and has been for a very long time. If you can't get a decent profit from what you want to do immediately it's just not worth attempting to do and it's certainly not possible to do in a Public Company. For every person like this there are literally hundreds who look at the Accounts and then make decisions based on what will bring a profit in the next quarter as apposed to what is the best possible approach long term. If you want to know what's wrong with our current system it can be summed up in one word [b]GREED[/b] the moment that Greed became the overriding factor in Business Decisions we where stuffed. Be that Greed to make considerably more money for the Company, the Shareholders, The Greed to make more money for an individual or the Greed of the Investors who are only interested in what is returned to them. Greed just doesn't work never has and never will if you don't believe me just ask this person you are holding up as an example I'm sure he'll agree. Col

lastchip
lastchip

In truth, after my second post, I couldn't be bothered to answer the bigoted comments made. Thank you though for your eloquent defence. My view has not changed. I have no problem with anyone being paid what they are worth and I recognise, the system that we all enjoy requires some to be paid higher than others. But what I will not agree to, is that it is open ended and the obscene salaries paid to (some) banking staff, can be justified. Further, payment for failure (so called parachute payments) should be abolished. After all, if I fail at the task in hand, I expect to get kicked out and no ones going to pay me a million or so for screwing up. For goodness sake, let's all go back to good old common sense. If that had been maintained, we wouldn't be in this position now! It seems to me, you and I pretty much agree.

HAL 9000
HAL 9000

Pity that the popular misconception that the staff are a unnecessary expense that must be stomped on at every Opportunity hasn?t been thrown out the door yet too. :D Col

Cyclops116
Cyclops116

When did Greed become such a dirty word? I'll guarantee that 99.8% of companies are started by someone trying to make money thats Greed isn't it? The fact that he employees people is a bonus to the greed the employer has. I'm going to assume since you're in this forum that you are in the tech industry? Do you get paid well for what you do? Personally I got in to this field because it was my hobby and I love computers, and the fact that it pays well is a bonus. If it didn't I wouldn't be working in this field and it would still be my hobby. Is that greed or being smart?

Cyclops116
Cyclops116

OK all you out there saying it's not fair shut up!! WAAA a city worker only makes this much and a bank worker makes 10X that then the city worker should go apply at the bank. A free market is a free market no one is twisting the city workers arm to stay there! Go back to school and get a better job. Socialism isn't part of a free market. If the CEO can get $150 mill a year good for him, if you have a problem with it don't use that company if enough people have a problem with it then that company will fail. Thats free market!!! If you don't like it go live in Cuba or China, see what it's like when the Government controls salaries!

HAL 9000
HAL 9000

Because it's not Communist it's good is a stupid mentality. It's that mentality that will allow the Communists to eventually win and then you will have real problems wont you? :D The moment that the Need to take Pride in your work no matter what it is is the beginning of Greed. Just because these people can get together and Extort unrealistic salaries for their services doesn't make it right and it's even worse when they get paid to leave a position. There is never just one way or the other be that Communist Vs Free Market the true Free Market should reflect what is best for that society not what is best for a privileged few at the expense of all others. Your Preferred System has been Corrupted and you are unwilling to look at alternatives and that is what is really sad here. Col

HAL 9000
HAL 9000

Well lets start at the beginning. [i]how is it corrupt if millions[/I] Do you honestly really want this answered? I?m willing to but you will not like the truth. [i]if millions of Americans took out the "Bad" loans? Is the whole country corrupt? Did the bank come in and put a gun to their heads?[/I] 50% of those people could have got real loans but as the Sub Prime Loans generated more money for the banks and other institutions they where pushed to Defraud the people taking them out and make more money for those lending the money and everyone concerned. After all isn?t that the American Dream to make money at all costs? [i]NO every single one of them went to the bank and said I want this house I can't afford can you help me get it![/I] I don?t know if you?ve noticed but anyone who buys a house on Credit can not afford that Home so by your argument no one should buy ever consider getting a loan to buy anything right? [i]Did the bank come in and put a gun to their heads?[/I] No they didn?t they did worse and totally abrogated their responsibility to the Shareholders by indulging in Bad Business Practice. They didn?t do this for any noble reason of getting more Americans into Homes they did it to make More Money and to hell with the conquences. It?s that simple Who would want to sell a loan at 5% when they could make 17% for the same thing? If this was all Joe Public?s Fault why has it not happened sooner like 40 years ago? The answer is quite simple there it?s because the Banks wouldn?t loan money for anything to people who could not pay it back. For the easy of making even more money they threw out the Good Business Practices that they have used for the past 100 years and acted like there was no tomorrow they threw money at people who should never have been allowed to borrow it in the first place. I don?t know if you realize this but just because you apply for a loan shouldn?t mean that you get one. It never did previously till this Sub Prime Fiasco hit the streets with the idea that it doesn?t matter that the people who we have given loans to buy houses can not pay them back we?ll make our money up when we reposes the properties and sell them at the Market Prices latter when they have increased in value so we don?t actually loose anything. [i]So it's not all the banks It's Joe Public on the "Main Street" too.[/I] No it?s the Banks & other money lenders who lent money stupidly. Again they only did this because they could make much more money this way on paper at least than acting responsibly. [i]All you people that blame the CEO's and the Government should look at your neighbor or maybe in the mirror[/I] Well I?m not sure who you are referring to here as I?m not blaming all CEO?s or for that matter any for the current problems the issue here is the way that the proven system was thrown out in what can only be described as [b]Pure Greed[/b] and absolutely not thought as to what was being done. Bad Business is still Bad Business no matter how you dress it up. [i]The normal person took the loan I know a couple myself that did it now when the ARM kicked in a couple making over $100K a year can't afford the Loan they signed up for even though they KNEW what they were signing up for[/I] Exactly and this is because they where given the wrong loan to begin with and even worse encouraged to Spend Spend Spend and use the House as Collateral. Many People treated the increase in value of their homes as their Personal Cash Machine and withdrew their liquidity as they went along and wanted something. The money Lenders knowing what would happen didn?t not give them loans instead they encouraged them to Borrow More Money again Bad Business and just plain stupid. Any other time these same Institutions would have refused Loan Applications and counselled their customers to Pull Their Horns in in other words Live Within your Means. But this didn?t happen no instead they gave them even more money liek it was going out of fashion. This is called [b]Bad Business.[/b] [i]can't afford the Loan they signed up for even though they KNEW what they were signing up for[/I] Really? In real life banks do not want to repossess houses this costs them money and is bad for business but in sheer greed they sold people loans that they should never have been offering not because they where better but because they made the banks more money. When you pay someone to push out Loans and pay them different rates for Loans that result in more money for you should you be surprised when these loans are sold at the expense of others that result in less money? As for them all knowing what they where getting into I very much doubt this as the Actions against the wouldn?t be having the banks still in business running scared. Over here we had the banks do exactly the same thing to a lesser extent they sold Foreign Currency Loans to Farmers but this was supposed to save the Borrowers money. Because the Banks Misrepresented themselves and the risks involved they eventually lost every case brought against them quite rightly too. 20 years ago you could trust what the Bank Manager told you was best for you now however they are telling you what is best for the Bank and don?[t give a Rats A$$ about you the customer. But they are not to blame after all Joe Public walked in and held a Gun to the Banks Heads to force them to hand out loans didn?t they? [i]If that happens there is no incentive to do better why try if it's going to be taken away and given to people that aren't trying as hard[/I] WTF is that all about? There is nothing wrong with making money I never said there was but what the current crop of Upper Management are paid is not commensurate with what they do. It?s not right that these people get massive Golden Parachutes because they [b]Stuffed Up[/b] do you? I don?t personally have a single problem with being paid for what you do but it?s wrong to be overpaid for doing nothing or even worse allowing Idiot Decision made previously to continue to happen. These people are supposed to be well paid because they are Responsible but here we are seeing they get paid and take [b]No Responsibility[/b] for their actions. This is what I find offensive. [i]Then you still have the people that have to do the redistribution and in the end those few will be called corrupt by the less fortunate who don't get the same size loaf of bread as the person in front of them in the food line or fewer rolls of toilet paper.[/I] [b]Now I?m completely lost but can I have some of what it is you are smoking please?[/b] I?m not at all sure what you are on about here who has said anything about redistribution of Wealth? [i]Life isn't fair we don't all get to sleep with the beauty queen and we aren't all smart enough or can play the system well enough to fool others in to thinking we're worth making millions a year.[/I] [b]Again I?m not sure what you are smoking here but can I have some?[/b] The only thing I have to say here though but I?m not really sure I?m addressing what you are on about is that because some Idiot was paid an outrageous amount of money to Bankrupt a place shouldn?t be justification to pay others more to do less. Thsi is what started it all years ago someone was brought in to run a place into the ground and was overpaid to do it/ Ever since the salary that was paid to this person and to all subsequent people in the same position has been justified by what was paid to this Idiot. Granted it?s been dressed up and covered in BS as the Share Holders can not complain or even know what?s happening but it?s still exactly how it happened. [i]On the other hand, I am smart enough to know that I don't want to dig ditches, so I work hard and learn as much as I can to keep the shovel or broom handle out of my hands![/I] Just one question here if there was no one prepared to dig ditches for the money being offered just how much would you find it acceptable to pay people to dig these ditches? If they all goit together and refused to work for the offered money and no one else could be found just how would the ditches get dug? These people don?t ask or expect to be paid to sleep but some others do and they are acting very close to what Criminals do. Funny thing is though they do not get charged for the wrongs that they do. So why are these people not responsible for their own actions? Col

Cyclops116
Cyclops116

HMMM how is it corrupt if millions of Americans took out the "Bad" loans? Is the whole country corrupt? Did the bank come in and put a gun to their heads? NO every single one of them went to the bank and said I want this house I can't afford can you help me get it! So it's not all the banks It's Joe Public on the "Main Street" too. All you people that blame the CEO's and the Government should look at your neighbor or maybe in the mirror. The normal person took the loan I know a couple myself that did it now when the ARM kicked in a couple making over $100K a year can't afford the Loan they signed up for even though they KNEW what they were signing up for. "Free Market should reflect what is best for that society not what is best for a privileged few at the expense of all others. " This is a completely skewed and socialist remark the only way that any society isn't going to have a "The Privileged Few" is by taking what they have and redistributing it to everyone else! Period end of story!!! If that happens there is no incentive to do better why try if it's going to be taken away and given to people that aren't trying as hard. Then you still have the people that have to do the redistribution and in the end those few will be called corrupt by the less fortunate who don't get the same size loaf of bread as the person in front of them in the food line or fewer rolls of toilet paper. Life isn't fair we don't all get to sleep with the beauty queen and we aren't all smart enough or can play the system well enough to fool others in to thinking we're worth making millions a year. On the other hand, I am smart enough to know that I don't want to dig ditches, so I work hard and learn as much as I can to keep the shovel or broom handle out of my hands!

RPip
RPip

If the city worker can throw a round ball into a little round net, he can make 1000x the bank worker.

lastchip
lastchip

It's exactly that greedy attitude that has landed us all in this mess we share. I'm not saying I disagree with a free market. I am saying that if human beings can't work in a fair manner to all, excesses should be controlled. I cannot (and will not) advocate socialism in it's most extreme form, but it must surely be clear to almost everyone, the current system is disintegrating as we speak.

Cyclops116
Cyclops116

We left because we wanted to be free from the governments telling us what we can and can't do, same reason we are having this argument today! I agree that we Americans are becoming lazy bastards and alot of us are getting a socialist attitude WAAAA "It's not fair somethings wrong the Government has to fix it for us!" "Oh Gas prices are too high the government should do something!" Waaa get a job closer to home and ride your bike! "I signed a stupid mortgage that I knew 5 years ago I couldn't afford, the government should take care of it for me!" Lets tax the rich they don't work for their money any way! If the government starts imposing salary caps on any business it's the end of free market!! Now if a Banking Association wants to regulate it's own salary scale them selves there's nothing wrong with it.

HAL 9000
HAL 9000

Europe and all those countries over that way have been around for considerably longer than the US has been populated by the rejects from Europe who ran away to live their lives as they saw fit and settled in the Americas. If everyone was going to stop working and live on Government Handouts it would have happened a long time ago and for some strange reason it hasn?t. We quite often judge others by what we would do ourselves so I?m assuming here you are attempting to imply that many Americans would prefer to live on Social Security get free Hospital & Medical I think you are very misguided and just plain [b]WRONG![/b] However I could be mistaken and all Americans could be [b]Lazy Bastards[/b] who want others to keep them at any cost. However I can assure you that other people in other countries are not like that which is a good thing. You do not have to force people to do as you think is best most want to live that way to begin with. But your argument sounds nice to you at least. :^0 Col

Cyclops116
Cyclops116

Again with the fair, what's fair about life? I work 10 to 12 hours a day to stay ahead and get my family a house thats got enough bedrooms for the number of kids I decided to have and a yard for the dogs I decided to get. It's no one elses responsibility to take care of these things. I'm going to work for the company that pays me the most and has the best benefits. Again MY DECISION!! Everything is a decision that I make!! If I want to be a CEO and make millions then I should be able to try! That's what America is based on if the government steps in and says you can't make that much then it really is a "FREE MARKET" is it?? The next thing would be OH it's not fair to all people that iPods cost $200 the government should regulate cost of an iPod then Steve Jobs can't make the ridiculous salary he makes. Good thing you live in the UK then you can hope on over in to the EU where people can get unemployment for their whole life and let the government run Hospitals take care of them and never have to work for it! Eventually everyone will catch on and they will all stop working then who's going to pay the taxes that pay for the unemployment and hospitals?

Locrian_Lyric
Locrian_Lyric

That statement is so patently false on it's face, I don't know where to begin....

avidtrober
avidtrober

"During very good economies, there???s not a lot of grumbling about the size of the paycheck of the head honcho." - What world are you living in? Even a little research could pull up publications back into the 1980s on executive pay fairness. "Typically in the US, and to a lesser extent in Canada, the ???market??? decides what most CEOs get paid" - THE fundamental fallacy of executive pay. IT IS NOT A MARKET FOR WHAT THEY ARE MAKING. At best, it is a *very* closed market of insiders, boards, consulting firms and the execs themselves. "I believe that the opportunity to increase one???s earnings in return for doing a better job is a very sound motivator." - This is missing the point. When a corporation does well, it takes MANY workers to do that. The rewards are all too often, even the norm, to be placed in a few people's hands for the work of many. per a previous reply: "The answer is simple, a CEO is worth what the Board of Directors and ultimately the shareholders determine." - "Utlimately the shareholders" is key here. Anybody want to reply 'yes' to this question: who wants to put $1000 into a corporation, where the CEO pockets a bill regardless of performance and passes a few bills around to friends and associates, again, regardless of performance. Shareholders don't own a corporation. In these days of high-tech, shareholder involvement should be totally revamped. THERE IS NO MARKET for what is going on, and those telling you so are ignorant of how it works or they are in on the game themselves. per another reply: "their worth is immeasureable" - no it is not. Earlier comments about how valuable, e.g. high-tech CEOs are, they must not know how the market works. e.g. Bill Gates is not giving away *his* money, he's giving away the *worker's* money. It took THOUSANDS of developers, sales & marketing, support, logistics, and more workers to make those products. The proportion of the rewards is nothing less than crime. Legal crime, in the U.S. I've worked with a fair amount of executives, and though not necessarily stupid, it is a far-fetched lie they hold some intelligence/mental advantage over the others. Nearly every CEO out there is not worth the pay they're making, because they couldn't contribute PROPORTIONALLY to what they're getting paid. You need TEAMS of WORKERS to make a plan happen. Even if the CEO's plans, they're worthless without someone pulling them, and well. So, how can you say plans/ideas are worth more than the execution? It is the execution that actually reaps the returns, not the plans/ideas themselves. #1 A new generation of corporations COULD come about: transparency and REAL ownership via the stockholders. I've changed insurance companies and vendors before over nothing more than executive pay. I'd be willing to do business with a corporation that offered a way out of the American executive model. #2 Pull your money out of the market. Add up the interest on your mortgage vs. returns on stocks. Even if you're ahead, how does it make you feel EXECUTIVES POCKETED PROFITS ON YOUR $$$ REGARDLESS OF PERFORMANCE, OR IF PERFORMING WELL, WAAAAAY OUT OF PROPORTION TO THE WORKERS IN THE CORPORATIONS (who are really what you're investing in, no? Ideas/plans are worthless w/o effective execution). I've said it for years and years, the American Executive model *will* crash the American economy. This subprime mess is not the first, it's just a collective incident. And, it won't be the last. Per many of the comments, you should wisen up to the fact you know very little about how well you are being conned.

richardp
richardp

The top level alone does NOT a successful company make, though they need the resources to make wise decisions. The workers alone (the body of the company) do NOT make a company successful, though they need the heart and reward to continue doing a good job. It takes everybody! So why not share the blessings accordingly?

daphne.jeffries@us-egi.
daphne.jeffries@us-egi.

If the CEO is a good leader and the company is profitable, their worth is immeasureable. If the company is going through tought financial times and the CEO calms the storms and keeps the company afloat, again immeasureable. If the company goes under, bankrupts, engages in unlawful business practices resulting in job loss and other negative consequences under their leadership and decision making, they should not be compensated for bad leadership and unlawfaul behaviour. They also should forfeit any bonus and other incentives.

dfw_cdn_guy
dfw_cdn_guy

Would reader responses be different if the question was "Are CEO's worth 275-300 times what the AVERAGE working person makes?" http://www.msnbc.msn.com/id/26963309/ Second, the phrase "the market determines what a CEO is paid." is misleading at best. In the publicly traded companies I have worked in the CEO's pay is determined by a compensation committee made up of board members. They almost always use an outside agency who specializes in these matters to survey the competition to see what they are paying. There are a couple of problems with this model: - Board members are usually nominated by the CEO and while elected by the shareholders, the CEO has a very strong influence on whether they stay on the board. - The outside compensation consultants often use strange definitions of who a 'competitors' are (companies in other industries or several times the size of the one they are working for). Strangely enough consultants that recommend large CEO pay packages get hired more often by CEO's than those that don't. Some CEO's work very hard and some are worth every penny they make (Herb Kelleher of Southwest Airlines jumps to mind) but the same can be said of many IT network admins or tech support people I've worked with. CEO's have more responsibility for the company's success but 275 times? Do CEO's have unique magical skills executive skills? We've learned that even Jack Welch of GE, perhaps the original CEO rock star, got at least part of his unbelievable record using GE Capital to magically make the numbers Wall street expected each quarter, not just his executive talents. I think companies would be better served if CEO compensation was brought back into line. Paid well, especially when the company performs about average for an extended period of time absolutely. But 275 times the average (which includes those CEO's that have driven their companies into the ground) is way off what it should be.

reisen55
reisen55

For many years my father's consulting firm worked for national and international clients, inclusive of Japanese firms (Ajinomoto, Kirin Beer, etc). This was perhaps 30 years back but even then the Japanese could not understand the salary practices of American management. Schooled by the economic philosophy of Joseph Dodge (financial) and W. Edwards Deming under MacArthur's command, they simply did not understand the enormous differences therein.

Jim.OGrady
Jim.OGrady

Professional Athletes have salary cap boundaries, why not CEO's in America? Sure, you can throw incentives at them to perform, but currently, most CEO salaries are not structured that way. They should definitely take performance into consideration as part of their payout, but if a company does poorly (no matter what the circumstances) then the CEO's salary should reflect that change.

brian.mills
brian.mills

The only time a CEO or anyone for that matter makes too much is when their company is failing or has failed. At that level compensation should be a reflection on success or failure. Do well, and get paid, do poorly and don't get paid (to a certain level). Accountability and person responsibility is what me need more of in this country, NOT socialist caps and ideas.

HAL 9000
HAL 9000

It's just as bad as the Socialist Model which doesn't work either. Because it's not a Communist Model doesn't mean that it's good only that it is used for the moment. Just Name me one CEO who has actually made any money for any company. I've yet to see a single one it's their staff who make the money that they spend and then screw over their staff while at the same time Taking Outrageous Payment for doing Bugger All. Col

de
de

The answer is simple, a CEO is worth what the Board of Directors and ultimately the shareholders determine.

CareerCoach
CareerCoach

They usually work harder and longer hours then the rest of the team, right? Should they be paid for hours on the job or results?

mjr1007
mjr1007

What's good for the goose is good for the gander. If we live in a global economy why is it that workers salaries are stagnant or going down and CEOs salaries are exploding? The answer is the Principal Agent problem http://en.wikipedia.org/wiki/Principal-agent_problem To put it in simple terms the fox is guarding the hen house. As has been pointed out earlier, the CEO appoints the compensation committee, it has absolutely nothing to do with the free market and everything to do with corruption. As a share holder of WaMu, do you really think I would have given those knuckleheads a dime? I'm not interested in executive compensation, I'm interested in executive incarceration. One last point about productivity. I'm a computer consultant and am really, really, geeky. I had a client give me 20 hours to review a process and write a proposal to speed it up by a factor of 5. Apparently they had their people work on it for weeks with no luck. Well after 12 hours I returned the code running just under 10x faster. It took me about one tenth the time (12 vs 120 hours) and the difference was I succeeded were as they did not. I make about 3 times what their people make. The tech lead there once complained to his director that I was hard to work with since he barely had time to think about what he wanted me to do next before I finished the current assignment. There is no free market, if there were I would make a lot more and the CEOs would make a lot less.

Eddie, GH
Eddie, GH

Good! I hope you are on your own now - because you are clearly under-utilised if just as a geek. Now that you are building a business for yourself: - Establishing the sales initial sales networks before your sales guys take over; - Planning pay initial pay scales; - Interviewing and recruiting your immediate staff; - Building partnerships; - Organising your financial and technical resource to be able to hold your head up; and the gamut of all that it takes to build a business, watch out for geeks like you who will be on your team - because they will not understand why you 'earn' what you earn. Good luck!

wrlang
wrlang

The only manager worth his salt is one that can make a productive environment for everyone. Not only should the investors have a say in CEO compensation through the board, but the workers should all have a say as well.

OH Smeg
OH Smeg

Those brought in for short terms to turn the company around generally screw it up completely but while they are there the Bottom Line looks great. Depending on what they are employed to do they will come in for a short time mess things up and then walk away with a massive Bonus that is both undeserved and bordering on Criminal. I've seen CEO's brought in and they sell off every asset that the company has and increase the costs of the company to do business. Over a 2 year period they can get away with this type of activity as the Profits or Bottom Line look great so the Board/Owners Encourages them to act this way. But when they leave the reality of what they have done begins to sink in as there is now nothing more to sell up and the Costs of doing Business have increased dramatically the company generally speaking is no longer profitable and fails/closed down etc. No matter what happens this is the beginning of the end and while the place may stagger on it is effectively finished. I've yet to ever see a CEO worth the money paid to them unless they are the people who built the place up to what it is today then the Greed steps in in Public Companies and they go for the Quick Buck at the expense of the entire company. The outlandish sums paid to CEO's and other Upper Management generally can not be justified and the pathetic saying that's what others are paying doesn't cut the mustard as far as I'm concerned. Just because one Idiot can get that much to wreck a place doesn't mean that they are worth it or even justified in employing then to do a job. These Salary Packages are all built on what someone else was getting as a Big Payment to do something which has resulted in the demise of a Place and this is used as grounds to attempt to justify others pay scales and then it snowballs on till everything eventually fails. The only people worth what they are paid are those who build up places for Long Term Profitability and those who come in to make a Quick Buck who are the ones that these outrageous pay scales are made to with the crappy excuse that this is what others are being paid adjusted to CPI and Inflation. They pick a guy from 25 years ago brought in for a 2 year period of time who wrecks a place and then attempt to use their Salary Package to justify their current Salary Package. The entire thing is a Joke. Then you have the Other CEO's who build up a company who use the place as their own Private Money Pit who are also used as a comparison for outrageous Pay Scales No one is worth the money that is being paid to these people and they certainly do not work harder than others if anything they are lazy bastards who Bulge off the workers of their organizations who are the ones who create income. But then again what do I know I've only been watching these people for 50 odd years destroy the place and then get Golden Handshakes/Parachutes to get the hell out. Col

No User
No User

salary of the average salary of the combined work force this excludes other C-suite contestants. That includes all pay, perks and any form of compensation.

Tim_Davidson
Tim_Davidson

The pay of CEO and other executives is NOT actually based upon an open market. What has happened is that a large number of Corporate boards are made up of other executives and associates of the CEO (it is quite common to find CEO A serving on CEO B's board and vice-versa). So each CEO looks out for the other CEO. Because of the poor governance at most firms that results in the stockholders having little actual say in how the company is operated, the boards run the company. And the boards generally look out for themselves and the not he interests of the stockholders. Which is why you have CEO's at firms that are tanking earning millions of dollars for driving a company into the ground. What needs to occur is that stockholders need more say in who sits on boards and what the compensation package for executives is made up of and how it is distributed. Some CEO's are worth millions (Steve Jobs) while others (Lehmans Bros. Richard Fuld Jr.)are not worth a dime.

HAL 9000
HAL 9000

But they call it the Executive Club and they Lord it over the Companies who want to employ them. Hey Joe got 4000 Million $ to bankrupt that place down the road 30 years ago so how much you going to pay me to keep you afloat for the next 3 weeks? I?ve go to be worth 80 K an our while I?m sleeping so I need a lot more to even consider talking to you while you ask me to work there as the CEO. This crowd make the Maffia look completely honest Col

rpnrch
rpnrch

The main thing is transparency. I think that if corporate officers were required to be public about all their transactions with those options, it would go a long way to quelling stockholder anger. Since most of the compensation has to do with stock, or the options to buy, that would go a long way toward making me feel better.

dbaginski
dbaginski

rpnrch: Corporate Officers for publicly-traded companies ARE required to report their stock and option transations. See the annual proxy statements released by the company to see what each Officer is making, including the value of their option grants and holdings. See SEC Forms 3, 4, and 5 for their option exercises and grants. It's all public info.

avidtrober
avidtrober

Correct. And, it won't make you feel better to know! It will make you sick to your stomach, especially if you know any/many of them. Pay is not proportional to contribution. It's far more proportional to who's sharing the same golfing schedule.

MikeGall
MikeGall

but most of their salary should be performance based compared to their competition. Having a our stock is up 20% good job heres another 20M doesn't make sense if you are losing market share and the general market is up 30%. You have to be compared to the competition, stock options don't necessarily do that. In good economic times easily half of a stocks gain will come from the fact that people are buying stocks, any stocks the other half is what the CEO and company in general has to fight for. I'm all for everyone getting most of their salary from bonuses. It makes for unpredictable earnings which I realize most people don't like, but it also would mean that companies wouldn't tolerate the guy that does the minimum amount of work not to get fired. Finally, in some companies the CEO is worth a lot to the company, say Apple, Microsoft, GE in the Jack Walsh days. Those superstar CEO's bring a huge value compared to some under the radar CEO's. Some people make investment decisions for the sole reason of whether they think Jobs is going to step down or not for example. There is no doubt that he ads more value added than 39X a factory worker so why shouldn't his pay reflect that?

Beoweolf
Beoweolf

In fact there have been complaints about the pay ratio between CEO, in fact all "C" level management compensation packages has been a contentious area for several years) as a ratio to base employee compensation. Until the late 80's to early 90's, that ratio of CEO to lowest hourly worker was closer to 50 to 80 times. In recent years it has exceed 500 times. Therefore, this is not a new trend, nor is it based on recent events. What is at issue is whether any "manager, coach, administrator" is worth that much imbalance in wages? More companies chasing a more or less static or contracting pool of available discretionary money led us to the current overall contraction in financial markets. Hourly wages have been more or less static for nearly a decade. Then we add in the job losses due to "efficiency pogroms" or outsourcing - fewer people, at the front line where doing the work at "slightly" higher wages. In IT, it was/is even worse - inflation within job titles has divided and devastated the core of available IT workers. It is not uncommon to see college trained BS, MS + experienced IT workers being offered pay not that much more than your local 'burger flipper', waiter. Plus be expected to walk in the door with cross discipline certifications and experience that 'should' be a separate position. The issue is feasting at the boardroom, while forcing penury at the cubicle level. Certainly profits rise, but worker satisfaction and customers are forced to accept a lower level of service at a higher cost. This negative cycle started a trend where pay inequality is an inevitable consequence. The question is wrong, but the answer is a resounding "yes" most are grossly over-paid and have been for a long time. Pay inequities were tolerated because activist shareholders have been blinded by greed, less concerned with long-term growth, sustainable rates of return and fair treatment of business lifeblood - customer service and return business. Shaking down the customer for every bit of profit is ultimately a losing gambit. Bringing in a new ?hired gun? every few years, leads to result, true ? but is it sustainable? Based on the current market meltdown, after years of this market philosophy ? the answer should be obvious.

The Scummy One
The Scummy One

and didnt add to the poll with it "It?s especially tough to find out that a company paid millions to the big boss just prior to a bankruptcy or government bailout." In situations where the company is failing, or has to close or get bailed out -- the Execs SHOULD NOT receive ANY form of Bonuses. If the company does well, and or better than projected, a bonus should be a specified percentage of total gains.

jturner1
jturner1

The way these bastards cook the books nowadays, NO WAY! I say NO to salary or bonuses on "Percent of Gains". The way these crooks manipulate the stock with a leak here and a wink there, screw them!

w2ktechman
w2ktechman

bad CEO's, they are not all that way! Some CEO's do a good job, however many should just be shot

Locrian_Lyric
Locrian_Lyric

pay the CEOs whatever you damn well please.

mike_patburgess
mike_patburgess

Get the Gov't out of business. Who the he## do you think is bailing these banking clowns out now? Oh wait that's you and I, the common taxpayer that is bailing them out right now with our tax dollars. Do you make a million dollar salary? Do you get 40 million in severance when you get laid off? Do you get stock options or better still, do you have enough money to get millions of dollars in stock options? Wake up and smell the coffee. Don't give these guys a salary and put them on a incentive plan. If the company does well, they will do well (let them get into the pool with the rest of us).

Locrian_Lyric
Locrian_Lyric

The CEO who took the reins of the company the year the company lost 100 million dollars, but was projected to lose a billion, and close? OR The CEO who took the reins of the company that was showing double digit growth and maintained that growth level, but nothing more? IMO, If I worked for the company that was doomed to close, still lost 100 million dollars but stayed open, I'd be all for that CEO getting a big fat bonus, 90 million would be fair, as that would be 10% of the money he saved.

arignote
arignote

If the company only loses 100 million and then pays the executive 90 million, wouldn't that almost double their losses?

NotSoChiGuy
NotSoChiGuy

...activity with accomplishment!!! I don't think there necessarily needs to/should be a cap in place for executive salaries. However, businesses should do a better job of tying compensation to performance; modest base + incentives that could make the deal highly lucrative if the firm performs well over a sustained period. The problem as things stand now, as we have seen, is that there is no real incentive for high level executives to maintain long-term prosperity in an organization. Hit one target goal for one fiscal quarter (which is easy to do when playing loose and free with GAAP), and you get a golden parachute??? That's not seeing the forest behind the trees economically speaking! When CEO's/high level executives do well (performance wise), their firms tend to do well. When those firms do well, so do their employees, business partners, etc, etc. It truly leads to a trickle down effect. It's a shame that greed, poor oversight and lax ethics have lead the economy down the wrong path in this regard.

wingram2
wingram2

Saigman...you are correct! Overpaying CEOs is not good but let's not react with government imposed limits. We have seen the world change in the last few weeks but in our pursuit of order we cannot reliquish the essence of free enterprise.

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