CEO pay

#1
EvanStalcup1990

EvanStalcup1990

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#1
Exorbitant executive salaries at American institutions was a hot topic even before news about corporate bailouts. According to a report issued recently by the Institute for Policy Studies and United for a Fair Economy, 500 CEOs received pay packages worth, on average, $10.5 million - - 344 times the earnings of the average American worker. Some experts say that 20x or 25x the salary of the average worker is reasonable.

Research companies that are notorious for stratospheric CEO pay. Also research top executives who receive more modest compensation packages (the recently retired CEO of Costco, Jim Sinegal, for example). How do you feel about CEO pay? Should there be a cap on how much top executives can earn? Do you think an earnings cap would affect the talent draw for the firm's top job? How would you go about determining a fair compensation formula for executives?


From my class dicussion, how would you respond?
 
#2
#2
What I think deserves examination -- and I have my own thoughts on this which I'll write up later at some point -- is an examination of this phenomenon in terms of market failure.

For most of the last century, and in most other industrialized nations, executive pay has hovered around a 20:1 ratio compared with average worker's pay. In only the last two decades, that ratio has skyrocketed to 400:1. What should happen, naturally, is for market competitiveness (through the stock market specifically) to level this out; the CEO who decides to take 50% less money than their competitors would then turn that extra money into profit (directly or indirectly), driving up the value of their company, forcing others to do the same until equilibrium is reached. Instead, we have a free market unencumbered by regulation in this particular aspect, that is on its own delivering inefficient outcomes.
 
#3
#3
EvanStalcup1990 said:
From my class dicussion, how would you respond?
Click to expand...

I personally believe that capping CEO pay is not a solution. It should never be the governments role to decide how much private corporations CEOs are paid. I would be curious to see some comparisons or other statisitics that refer to highly paid CEOs and the profits that their respective firms saw at the end of their tenure.

Ultimately the size of a CEOs salary should be left up to the company, board of directors, and share holders. There are less than honorable companies out there I do agree, but we should do our research and try to refrain from doing business with said compainies in the long run.

All of this however DOES NOT INLCUDE the compainies that received money from TARP in 2008-2009. They should be held to a different standard because the money they were given was to keep those companies afloat and out of bankruptcy artificially propping them up.But then again we wouldnt have that to worry about IF the TARP stimulus was not passed in the first place.
 
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#4
#4
milohimself said:
is an examination of this phenomenon in terms of market failure.

Instead, we have a free market unencumbered by regulation in this particular aspect, that is on its own delivering inefficient outcomes.
Click to expand...

I think that would be interesting to look at however, I disagree that we have a unencumbered free market. Just looking at the federal regulations on the books already seems to point to me (personal opine) that less government regulation would offer greater oppurtunity to maximize profits and increase employee benefits and pay. Yes regulation has not really hit the topic of CEO pay but should it?

Another thing to take into consideration is the benefit packages that employees enjoy today. Insurance, Savings, Stocks, Leave time, Sick time etc that is not counted in real dollars but still yields a value to the employee.
 
#5
#5
OsbourneBROS83 said:
I personally believe that capping CEO pay is not a solution. It should never be the governments role to decide how much private corporations CEOs are paid. I would be curious to see some comparisons or other statisitics that refer to highly paid CEOs and the profits that their respective firms saw at the end of their tenure.

Ultimately the size of a CEOs salary should be left up to the company, board of directors, and share holders. There are less than honorable companies out there I do agree, but we should do our research and try to refrain from doing business with said compainies in the long run.

All of this however DOES NOT INLCUDE the compainies that received money from TARP in 2008-2009. They should be held to a different standard because the money they were given was to keep those companies afloat and out of bankruptcy artificially propping them up.But then again we wouldnt have that to worry about IF the TARP stimulus was not passed in the first place.
Click to expand...
We could have done that, if the government had decided to take a role as voting board members, but the result would have been that the vast majority of the banking sector would essentially be socialized.

OsbourneBROS83 said:
I think that would be interesting to look at however, I disagree that we have a unencumbered free market. Just looking at the federal regulations on the books already seems to point to me (personal opine) that less government regulation would offer greater oppurtunity to maximize profits and increase employee benefits and pay. Yes regulation has not really hit the topic of CEO pay but should it?

Another thing to take into consideration is the benefit packages that employees enjoy today. Insurance, Savings, Stocks, Leave time, Sick time etc that is not counted in real dollars but still yields a value to the employee.
Click to expand...
You just said it yourself, there isn't any regulation on the books concerning the topic of CEO pay, yet somehow a huge number of publicly traded companies give exorbitant compensation for their executives. If somebody can offer a cogent argument saying that government regulation caused it, then I am all ears, but the signs I see point strongly towards rational irrationality and herd behavior, possibly collusion in industries where the field is narrowed down to a handful of large players.

The fact is simple: as I mentioned, there's nothing stopping any CEO from greatly reducing their salary in order to undercut their competition and drive up profitability, yet it fails to happen.

(I'm trying to play devil's advocate here)
 
#6
#6
I don't care what a company's CEO is paid. In fact, the only people's salaries that we, as individuals, should care about are those of public employees.
 
#9
#9
It all depends on how much a company makes in profit. The way to look at it would be a captain of a ship. The more cargo (profits) he brings to port, the more he takes home.

Some companies, the journey to profits is long and hard (biotechs) and they should be paid on expectations of what that profit should be (reasonably) If they don't deliver, they should be fired
 
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#10
#10
Exorbitant executive salaries...are notorious for stratospheric CEO pay
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you can definitely see where the teacher wants the discussion to go
 
#13
#13
My personaly opinion on CEO's differs greatly from the opinion of most on this board, so I'll leave it at that. However, I would like to see the lower end employees get some sort of shared incentive bonus consistent with that of the CEO.

*Note: consistent as to their pay scale, not equal to that of the CEO.

And I'd really love an explanation on why a CEO earns so much damn money, anyways.
 
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#14
#14
VOLatile said:
My personaly opinion on CEO's differs greatly from the opinion of most on this board, so I'll leave it at that. However, I would like to see the lower end employees get some sort of shared incentive bonus consistent with that of the CEO.

*Note: consistent as to their pay scale, not equal to that of the CEO.

And I'd really love an explanation on why a CEO earns so much damn money, anyways.
Click to expand...

Really, why?

Surprised you put earned
 
#15
#15
VOLatile said:
However, I would like to see the lower end employees get some sort of shared incentive bonus consistent with that of the CEO.
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many companies offer this so it's up to the employee to get with one that does (if that's something they need).
 
#16
#16
VOLatile said:
My personaly opinion on CEO's differs greatly from the opinion of most on this board, so I'll leave it at that. However, I would like to see the lower end employees get some sort of shared incentive bonus consistent with that of the CEO.

*Note: consistent as to their pay scale, not equal to that of the CEO.

And I'd really love an explanation on why a CEO earns so much damn money, anyways.
Click to expand...

Explanation is the same reason athletes and movie stars make so much money. Limited skill set. Supply & demand.
 
#17
#17
I don't think the government should worry about CEO pay, but of I were a CEO I don't think I would need 25 million to be happy.
 
#21
#21
If they can get a company to pay them that much - good for them. More saying that I would not decide to pay my CEO 400 times what I pay my accountant.
 
#23
#23
tri_vol said:
Explanation is the same reason athletes and movie stars make so much money. Limited skill set. Supply & demand.
Click to expand...

Don't agree with the bolded. At that level, I don't believe it is a separation of ability...it is a separation of professional networking, fortuitous circumstances, and political savvy.

Not saying the top guys aren't really good at what they are doing, they are. But from my experience the top 5-10% of executives at a big company could do the job, but they all don't get paid what the CEO does. I posted a thread about this a while back, and could never come up with what market forces were driving the need to pay one executive that much money over another. It certainly isn't ability and skill set alone.

That said, I certainly don't believe the government should get involved with this, and I don't have a problem with CEO pay. It is what the market is doing, I just don't understand what is driving it. One man is getting all the reward for increasing shareholder value, and he isn't the only one responsible. With some exceptions, the CEO sometimes didn't even work his way up through the company he is over and doesn't know what happens day to day in the trenches. I would say mid-level managers have more direct influence on the success of the company.

Just my opinion.
 
#25
#25
milohimself said:
What I think deserves examination -- and I have my own thoughts on this which I'll write up later at some point -- is an examination of this phenomenon in terms of market failure.

For most of the last century, and in most other industrialized nations, executive pay has hovered around a 20:1 ratio compared with average worker's pay. In only the last two decades, that ratio has skyrocketed to 400:1. What should happen, naturally, is for market competitiveness (through the stock market specifically) to level this out; the CEO who decides to take 50% less money than their competitors would then turn that extra money into profit (directly or indirectly), driving up the value of their company, forcing others to do the same until equilibrium is reached. Instead, we have a free market unencumbered by regulation in this particular aspect, that is on its own delivering inefficient outcomes.
Click to expand...

What makes it inefficient? Market failure is defined as an outcome where there exists another conceivable outcome where a market participant may be made better-off without making someone else worse-off. This isn't even a question of market failure.

We are at market equilibrium, unless you think there is a shortage of CEOs.
 
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