Friday, August 31, 2007

So? What's Your Point?

Someone in my office just dropped a print-out on my desk of the story that is in wide circulation in the news about how U.S. CEOs earn in a day what workers make in a year. My response to him was: "So? What's your point?"

After he left, shaking his head about how clueless I am, I realized that I might have been a bit flippant about how I responded. Whenever I think of business leaders, I think in terms of entrepreneurs or results-driven managers. I don't think in terms of executives who don't perform by creating shareholder value (in fact, they quite often run their companies down) but who nonetheless get paid enormous salaries because . . . well, I don't know. Why do non-or-under-performing CEOs get paid the big bucks?

Damned if I know.

I have no problem with a Bill Gates or a Warren Buffett making big bucks. Even Larry Ellison. I do, however, have a problem with someone being paid megabucks simply because he is the head of Corporation X and because he 'has to' be paid as much as a similarly sized company, Corporation Y. The fact that Corporation Y makes seven gazillion dollars in profits for the shareholders whereas Corporation X makes only two tinygillion dollars is overlooked.

CEO pay should be based on performance. Always. And if profits go down, the guy (or gal) should be fired or have his or her salary cut accordingly. And these things should be spelled out right in the employment contract.

So, Pat, I apologize. There are definitely situations where CEOs are overpaid, often by ridiculous amounts, and I think that is not right. But . . . it is a matter for shareholders to deal with. If they paid more attention to the way the companies in which they invest are run, they might soon put an end to this nonsense.

They won't, of course. It is easier to bellyache and whine than to do something that takes a bit of work, like attending shareholder meetings, reading annual reports, or dumping the stock. That's just the way it is.


  1. Yeah there are lots of CEOs who make insane amounts of money. Used to be that a CEO would make 50-150 times what the average employee would, but now it is often 1000s of times. I fail to see how this makes sense. If a company is doing that well, then all employees should share some of that wealth.

    It is particularly bothersome when a CEO drives a company into the ground, and runs away with a huge severance package in the 10s of millions. Sometimes the employees lose their entire pension in the process. Another example is my wife's company, Air Canada. THey went under bankruptcy protection and all union were forced to renegotiate their contracts and give up 10% salary and a bunch of other stuff like their yearly bonuses. When the company emerged from bankruptcy, upper management gave themselves nice juicy bonuses for havign "saved" the company. That is obscene behaviour in my book.

    One of the problems with our system is that CEOs sit on each other's boards (a pretty lucrative activity in itself), and in so doing they get to vote each other's salaries.

  2. If they can work out a deal to make so much money, I say let them do it. When I took my current job, I agreed to a particular salary. The same goes for the CEO's. Someone or a group of people obviously agreed on it, and they are ultimately responsible for the decision. If the CEO is needed that badly, it must be worth it.

    On the flip side, I hear so many people complain that they aren't making enough money or that their job is no good. I haven't complained about my salary in 8 years since being in the IT field. Sure, it might not have been the best, but I wasn't motivated to change my situation, and for the work I was doing, I thought it was worth it. Over the last six months however, I've turned that all around, have changed jobs twice, and am making 25% more than I was a year ago. So to those people who are unhappy with work and wage, there's a great job market out there, and all it takes is a bit of effort.

  3. The system is incestuous, as you suggest, Sylvain, with board memberships etc. There are a lot of things that should be changed. The underlying sentiment, though, is what causes the problem in the first place: the shareholders' feeling that CEOs know what they're doing and deserve big bucks. Big salaries draw admiration by the great unwashed, usually -- consider movie stars, sports figures, musicians, etc. Is it really worth 15 million dollars a year to hit a baseball or whatever?

    Sports and music salaries will come down if people refuse to go to games, or buy concert tickets. CEO salaries will go down if shareholders insist that the salary be geared to performance.

    Trooper: Like you, I have no real problem with the size of the paycheque. I just ask that it be earned, something that is clearly not the case with hundreds of big-buck CEOs.

  4. With you from the first four words, Atavist.
    Frankly, I'm sick and tired of hearing all the whining about this: It's not going to accomplish anything, and people that built their businesses from scratch like yourself deserve every penny they make.
    There are also the Rockfellers, Rothschilds and other OMFR who hold CEO position just so they can claim to be "captains of industry" while sucking the company dry. If the shareholders don't care enough about the sources of their wealth to do something about it, they deserve the fruit of their sloth.
    And to answer the unspoken issue the sylvains out there don't openly raise, NO the government should do nothing about it: It interferes chiefly to LOOK GOOD, while in reality, merely letting the crooks walk and filling its own pockets. Altruism is the source of the problem here, not the solution!

  5. If the alternative to overpaid CEOs is that the gubmint OWNS and manages big corporations, I'll take the private corp bloat, thank you very much.

  6. I would say this is a board problem but boards are driven by profits, therefore decisions are often made for short-term gains.

    Golden parachutes also lead to selfish motivations.

  7. I'm all for people making salaries that they deserve.