An update on CEO pay - followup

I was going to post this at the old thread where we got into a discussion on CEO pay..but the search function is still being birthed.

I cut the article a bit for length. Follow the link for the full story.

To follow-up on the topic of CEO pay vs. Avg worker salaries:

CEO pay keeps rising even as economy slows.

As the American economy slowed to a crawl and stockholders watched their money evaporate, CEO pay still chugged to yet more dizzying heights last year, an analysis shows.... ...The AP's formula, based on data from the past two years, adds up salary, perks, bonuses, above-market interest on pay set aside for later, and company estimates for the value of stock options and stock awards on the day they were granted last year. That provides a clearer picture than pay totals required by the Securities and Exchange Commission, compensation experts say, because the SEC totals include expenses companies book during the year for previously granted stock compensation and retirement benefits.... ...Rick Wagoner, chief executive of General Motors Corp., announced earlier this month the company had to close four plants that make trucks and SUVs because of lagging demand as fuel prices soar. That followed the posting of a $39 billion loss in 2007, a year when its stock price fell by about 19 percent, without adjusting for dividends. And Wagoner? His pay rose 64 percent, to $15.7 million. KB Home was battered by the subprime lending crisis and the weak housing market, losing almost $930 million in 2007 and its stock lost 60 percent of its value. But CEO Jeffrey Mezger still made $24.4 million, as valued by the AP, including a $6 million cash bonus.... "The cracks in the idea of pay for performance really start to show when performance falters but pay still rises," said Paul Hodgson, senior research associate at The Corporate Library, an independent corporate governance research firm. "It's always a win-win scenario for executives." There were examples of companies that cut back on pay during a bad year. Department store operator Dillard's Inc., plagued by falling sales, profits and stock value, cut CEO William Dillard's pay package by two-thirds, to $1.1 million, according to the AP calculation.

Everyone yells that the CEO pay is not what is bringing the American business model down and I agree. While the CEOs pay is not responsible alone you must remember that when there is a CEO there is a CFO, CTO, CIO and a whole lot of other anagrams that add MILLIONS in the upper management salary structure... THOSE are the guys killing the economy for the middle and lower classes.

"Officer" and managemant pay can easily outweigh drone pay once bonuses, perks and extras are added in.

How do I get on that gravy train....

Near as I can figger, it's a small "club" that sits on each other's Boards of Directors. Pres of Co. A is on the board of Co. B. Pres of Co. B is on the board of Co. C. Pres of Co. C is on the board of Co. A and votes to give PRes of Co. A a $X * 10^6 salary and $2 * 10^6 severance package if he screws up and gets fired. Pres of Co. A does the same thing for Pres of Co. B and so on. Watch what happens when they screw up and get fired. They take the multi-million dollar severance package, stay home for a few months, then get a job as president of a different company and procede to wreck that one. Also, these BoD's seem to have some political connection as well. Remember that the Lizard Queen was on the Wal*Mart BoD, and she didn't get there because she owned the stock.

In a booming economy, the corporations can survive this. In tough times, like now, it is flat out killing them. When a company with a billion dollars in sales shows a loss of $20 million for the year, and $10 million of that is paying the "severance package" or special deals for hiring the replacement, that's bad. And that's what's happening.

Here in Atlantic City, The company that owns Resorts and the Hilton Casinos is about to start layoffs.. in the middle of summer, out busiest time of the year.

Originally it was started as "voluntary layoffs" for upper and middle management.. but now it is going to be mandatory managment for the rank and file workers.. funny how that works. The people that have put both of those casinos into the toilet get to keep their jobs, but the ones trying the hardest to work with the customers and bring them back and having the door slammed behind them,

Oh, hey, here's a good one: The next CEO will have "new ideas." You know what the new ideas are? "We're going to reduce costs and increase sales." Wow, what brilliance. If only us peons could have thought of reducing costs and increasing sales as a way to turn a company around. I'd a never thought of that.

Here's how layoffs always seem to work to me. Head of the company looks around and says, I'm top heavy with highly paid managers... too many chiefs for the number of indians. So he tells his upper management, you need to trim X from your ranks. Upper management hands it down to middle managers who protect themselves, fire more indians, and the company ends up even more top-heavy.

I think upper management of large companies should be locked in a room and told that they won't be allowed out until they cut their own numbers by 20%. Assorted melee weapons are provided and cameras are set rolling. They can then recoup costs by selling videos of the proceedings.

What I find utterly hilarious is that so many people gripe and moan about CEO/management pay and how it's crushing the little guy... yet I don't see any newspaper articles analyzing how top salaries among professional sports stars are rising even as the economy slows. Nobody is oiling up their torches and pitchforks to go after hyper-paid athletes.

It's just big corporations that are automatically assumed to be the root of all evil?

Baxter, its cause those on the bottom tier are deemed to be "direct labor" They're labor is billed out as actually impacting the cost of the final product. Middle managers etc are indiret labor. they're affect is harder to define and easier to bury accounting wise.

Dr. Hess wrote: Oh, hey, here's a good one: The next CEO will have "new ideas." You know what the new ideas are? "We're going to reduce costs and increase sales." Wow, what brilliance. If only us peons could have thought of reducing costs and increasing sales as a way to turn a company around. I'd a never thought of that.

big debate on this inside one of my management classes. Seems like people just don't want to promote from within ...

Interesting stuff.

Duke wrote: What I find utterly hilarious is that so many people gripe and moan about CEO/management pay and how it's crushing the little guy... yet I don't see any newspaper articles analyzing how top salaries among professional sports stars are rising even as the economy slows. Nobody is oiling up their torches and pitchforks to go after hyper-paid athletes. It's just big corporations that are automatically assumed to be the root of all evil?

Nah, I've gone after them many times. I just get tired of hearing sports fans justifying their inflated salaries. Big Business is an easier target cause even The Man gripes about The Man.

Duke wrote: What I find utterly hilarious is that so many people gripe and moan about CEO/management pay and how it's crushing the little guy... yet I don't see any newspaper articles analyzing how top salaries among professional sports stars are rising even as the economy slows. Nobody is oiling up their torches and pitchforks to go after hyper-paid athletes.

Pro sports don't actually produce anything that would significantly effect the economy if it was lost. And even if the major clubs implode, there will always be "lesser" clubs that people can watch.

Pro athletes aren't screwing blue collar production workers in order to line their own pockets.

Pro athletes aren't getting paid nearly as much as these CEO's.

Pro athletes actually do "work" that has perceivable value. And they're actually held accountable for their performance. They are actually paid in response to the revenue they generate.

Pro athletes aren't screwing "Overseas Container Product Importing" workers in order to line their own pockets.

Production Workers? Where? I fixed your comment.

Neither movie stars nor sports stars can be said to be paid in repsonse to the revenue they generate more so than a CEO.

All are paid in response to revenue they are thought to be able to generate.

CEO's are not paid as much as "these CEO's". You're talking about a mere handful of uber-paid executives. Adding in endorsement deals, I'd say that the handful of uber-paid sports and movies stars compete pretty well with their corporate peers.

Pro athletes and movie stars "screw" blue collar production workers about as much as CEO's do.

If you think CEO's don't do work that has "perveivable value" then it sounds like you don't quite understand what a CEO does...

Man, you guys have a strong dislike for a free market!

Bill

Fair enough. I was just throwing out my hypotheses of why people don't hate sports stars as much as CEOs. Both may be perceived as overpaid, but CEOs are seen as getting that money at the expense of workers, and regardless of how good a job they do.

I do think sports stars are overpaid but really don't care much about them one way or the other. I don't give them my money.

I'm gonna disagree with you Bill, based on my own observations at the company that provides me with kitty food and Lotus parts, now indirectly after they sold me. In the past 7 years that I've been here, I've seen, I dunno, maybe 5 CEO's, an assortment of President of this or that's, CIO's picked because the CEO was on the BoD of the last company he destroyed, etc. These people pull down millions of dollars to screw up a company and quit. The last one was here a year or so and got 3 mil to quit. There was a little more to it than that, and he was probably doing about as good as could be done and was just thrown under the bus (for 3 mil). He bought some very cool English cars while here in the 10^5 price range. Home Depotwould be the poster child case if ever there was one, but it's not just a handful of uber-paid executives. This is a relatively small large corporation.

I know what CEO's do. They fly around the world first class, or business class if they're trying to make a statement, stay at nice hotels, talk to their friends at company paid for nice restaurants, tell the company that they need to "cut costs and sell more product," fire people and hire cronies. Oh, and arrange mergers and aquisitions which result in big money for the banking industry. They also write a speach occasionally and "talk to the street" about how they're going to turn things around, but we face tough challenges ahead in a dynamic and competitive environment. That's a big business CEO's job.

Dr. Hess wrote: That's a big business CEO's job.

actually.. a CEO's job is to generate value for stakeholders.

What he does after that is his own deal.

Bill's right though, it's free market. The CEO will be paid what the market thinks he is worth, no matter his morals or what he actually does. It's all perception and marketing yourself as an asset.

I do not blame one sect of the free market system I blame the system and the inability for the system to be fair towards the masses.

Dr Hess is correct, it isn't a free market, it's largely controlled by a relatively small group of people. It is an example of how free market theory breaks down. Without government regulation all free markets eventually end up with a small number of monopolies controlling the market.

ignorant wrote:

Dr. Hess wrote: That's a big business CEO's job.

actually.. a CEO's job is to generate value for stakeholders. What he does after that is his own deal. Bill's right though, it's free market. The CEO will be paid what the market thinks he is worth, no matter his morals or what he actually does. It's all perception and marketing yourself as an asset.

skappes agrees with Dr.Hess!! ignorant supports the free market!! Dogs and cats living together!! The End of the World must be here now!!

There's no chance of this bunch of Ebay junkies truly hating the free market.

CEO pay just doesn't make sense anymore. Sports stars get paid silly bucks because they can do amazing things with a ball or even a steering wheel. They are superheros to the common man, and a Jordan or McRae will guarantee spectators who want to witness these heroes at work.

Movie stars get paid silly bucks for a rare ability to make millions of people fall in love with them for a couple hours. Sometimes it's because they have the uncommon will to do any crazy thing to make a movie role work (see Christian Bale's career for example) and look pretty even when they're playing at something ugly. Usually it's an even more uncommon mixture of both.

Either way sport and movie stars put butts in seats and make millions of dollars for the people that hire them.

Regular CEOs make no sense. They seem to get paid crazy money to do nothing, or worse. If Rick Wagoner was comparable to Michael Jordan, then he would have the ability to carry a company to victory damn near by himself, and yet he doesn't. Yet he gets paid millions and millions supposedly because he's that much more valuable than Joe Sixpack, then doesn't do the job any better than Joe, and then when Rick gets fired for being useless, he gets a fat "thanks for playing" bonus, again in the millions.

That's not the free market at work. It defies the free market. All the regular schmoe sees is a guy who gets paid insane money just to run a company into the ground.

But hey, prove me wrong. Name a CEO or two with a track record for singlehandedly turning losing companies into winners. That would justify multimillion dollar CEO pay in a free market.

Warren Buffet: Bought a near bankrupt company (Berkshire-Hathaway) and turned it into a multi-billion dollar conglomerate

Jack Welch: Rose through the ranks to become CEO and expanded the value of the company by more than one order of magnitude.

Alfred Sloan: His startup was purchsed by GM and after ebcoming CEO, he led the company to become the bigest corporation in the world succsesfully working through the Great Deppression and WW2.

Andrew Carnegie (if you don't mind going a long way back): Founded what became the largest steel company in the world and later sold it to JP Morgan who turned it into US Steel.

That being said, I do think CEO pay is out of line generally across the market so I'm selling off some of my investments (the best way for the owners to express disappointment in the market) to start my own business. This way, I might be able to be an overpaid CEO someday too.

I am waiting for the day that signifincant shareholders demand investigating outsourcing of executive management. If you can find the same (or better) caliber of leadership in Europe or Asia for millions less, the excutive offices should go to Europe or Asia. Any US CEO and and earning 2.5x what a Japanese or German CEO earns for running a similar company, better be delivering 2.5x return to the shareholders. If not, he or she should be replaced with someone cheaper. Isn't that the way free markets (and globalization) are supposed to work?

I'm with you, Type Q. I think we can find a very efficient guy named Gupta in Mumbai that can run a company into the ground for $50K/yr, saving tens of millions right there.