Who’s in Charge?

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Here we go again.  It’s annual report time- and we see that CEO’s are getting more and more outrageous increases to their already bloated salaries.  Even if those companies are doing poorly.

Do you realize that the average pay of the higher paid CEO’s (200 of them) was a measly $ 21 million.  Yeah, that can hardly pay for anything right?  And, at the same companies, the average pay for their employees was just over 1/1000 of that number?  As if the employees contribute not a whit to the performance of the organization.   (By the way, the ratio for the Fortune 500 company executive pay is greater than 200:1.  And, that ratio is 10X what it was 50 years ago.) Any cogent thinking individual knows that corporate success is a team sport.

Compensation ratio to profits

I’ve already described how this situation persists.  First of all, the board members are executives at other firms who know that if the pay for this firm’s executive goes up, so will theirs.  To compound this largesse, they also survey other companies to determine what they pay their executives- and proceed to one-up those values by offering the firm’s top executives more.  Until the next survey, which one-ups them… You can see the spiral.

Moreover, much of the compensation afforded those top 200 folks is payment in stock- at a rate of some 44% of their total compensation.  That percentage (the stock component of their salaries) has been unchanged over the past two years- despite the fact that the firms with whom these folks are associated were not replete with profits.

You see, executive pay rarely matches performance.  And, that persists because we adhere to this myth that all important developments are attributable to a single person.  (This is often called the ‘Great Man Theory of History’, as expounded by Thomas Carlyle in his tome, “On Heroes, Hero-Worship, and the Heroic in History”.)  The only problem with that is, like with the formation of America, it usually takes a confluence of talented and energetic individuals to achieve something great.

I, for one, fear this compensation system will keep growing the income inequality that exists in the US (and the world).  And, unless things change dramatically- like giving power to those who think they own the firms involved (the stockholders, silly)- this phenomenon will continue.  Because, as of right now, even if the stockholders vote against the firm’s compensation plan- the board ignores those pleas.

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