CEO Pay Rewards Poor Performance

by Jon Lewin on February 17, 2012

Apple CEO Tim CookBloomberg columnist Roger Lowenstein believes that “fixing CEO pay—making it more reflective of what executives are truly worth—would go a long way toward restoring America’s faith in business, and in equal treatment.” Sounds like a good idea to me.

But then he points out that CEOs of companies in the Standard & Poor’s 500-stock index earned in 2008 less than 1% of what all one-percenters earned. Therefore, “it’s unfair to blame CEOs alone for fostering inequality.” But why take the numbers out of context? Let’s take a look at the other pay numbers within the companies that these executives are running.

Lowenstein says nothing about the employees of said CEOs’ companies and barely mentions the shareholders. When the CEO’s salary compared to the median employee of his company increases exponentially, that is the very definition of inequality.

In 2010, CEO pay leaped 27% while workers in the private industry had their pay go up just 2.1%. By one calculation, the ratio of CEO pay to that of the average worker in 2010 was 343 to 1.

Imagine working at a firm where the stock price plummets, resulting in layoffs and lower or no bonuses. But the CEO gets additional rewards. Even if the CEO is forced out, it will be with a golden parachute. Poor performance is rewarded.

Lowenstein’s proposal that legislation be enacted that would require shareholder votes on any exit package worth over $5 million would address that concern. So would changing bonus structure so that bonuses would be based on performance and not just automatic.

And when stock prices go down on a CEO’s watch, he shouldn’t get compensated for his loss in stock value, as Citigroup CEO Vikram Pandit did in 2010 when he received a $10 million stock award and 500,000 additional stock options.

Wonder if the shareholders who suffered losses would have approved that.

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One comment

[...] at earning anywhere close to the income the executives in their company is making. Recently, the Wall Street Job Report stated that CEO pay leaped 27% in 2010 while workers in the private industry had their pay go up [...]

by What is Corporate Network Marketing? on March 12, 2012 at 10:24 am. Reply #

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