CEO Pay
I have a difficult time with CEO pay. On one hand I would like to think that it is determined based on market forces and should not be subject to government scrutiny. On the other hand, it is most certainly influenced by the CEO fraternity of board members and compensation committees. As a result, I have to defer to my gut feel.
I do not begrudge people like Bill Gates the ability to accumulate as much wealth as they can. He didn’t do it through an egregiously high salary, he did it by building a company that he owned a major stake in. Likewise, Oprah created a franchise that made her fabulously wealthy as did Martha Stuart. But what about your basic CEO who’s just another hired hand?
CEOs can have a profound impact on a company. Some might say that if a company’s market capitalization goes up by $1 billion, why not pay the CEO $100 million. First, CEOs do not accomplish a darned thing on their own. The ones we’re talking about usually have 50 to 100 thousand employees or more at their beck and call. Second, there is a little thing I’ll call the reasonability test. In a capitalist society, we all understand that the farther up in the organizational structure you are, the more money you are going to make. Reasonability is usually a function of where you are in the structure.
Personally, I can comprehend a person making a million dollars in total compensation a year. I use total compensation since unless you do, other forms of compensation will be manipulated to maintain the status quo. I can even understand someone making $5 million a year. And just to be on the safe side for all those people who consider me to be an under achiever and incapable of understanding what good people are really worth, let’s say $10 million is entirely reasonable. That would make CEO pay 285 times that of a shop floor worker making $35 thousand a year. Hard to imagine they both put their pants on one leg at a time.
To hear about some CEOs making $100 million plus gives me pause. Let’s say that even my wife would not be able to find a way to spend all of that real time. While money is something that no matter how much you have, you always want more; let’s be reasonable. If in one year you sock away a $100 million, do you really care what happens next year. The CEO, as top dog is the visionary. What is the company going to be when it grows up? What are the long term market trends? How does the company leverage globalization to its advantage? How can it make some money off being green? How do you tap into the $700 billion bailout fund? If the worst thing that can happen is that you are fired and are forced to take another $100 million in severance, do you really care?
Richard Gabel
Comments