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In Defense of Which CEOs?

“Chauffer-driven limousines, millions in stock options, golden parachutes. It’s no wonder bosses’ pay and perks can rankle,” write Ray Fisman and Tim Sullivan of The Wall Street Journal. The writers argue that “many CEOs are overpaid—or even paid for incompetence, but you can only appreciate good performance once you understand what a leader does.” But is this a balanced understanding of where CEOs are in terms of the reality on the ground?

For starters the Wall Street Journal’s frame of reference is a bit skewed. As Chief Executive has noted in its own study of CEO compensation, of the 30 million businesses in the U.S., less than 6,000 are publicly traded on major stock exchanges. Although the Journal writers main point is well-intended—you have to know what CEOs do in order to judge whether he she is appropriately compensated—they persist in using as their frame of reference a narrow span of CEOs– those in the S&P 500. This is a familiar trap in which the mainstream media falls–focusing on 8 percent of all public companies and less than .002 percent of all companies operating in the U.S.

With this narrow and statistically miniscule scale in mind, how could the Journal or any other media draw anything meaningful? To quote Ronald Reagan, there they go again. Most companies in the country are privately held. Last year Chief Executive’s research division conducted a comprehensive study of private company compensation collecting data from 1,101 companies. In 2011, the median private company CEO total comp package amounted to $362,900. For private companies with at least $1 billion in annual revenue that figure was $1.7 million. This is only 18 percent of the $9.6 million figure reported by the Associated Press and other mainstream media.

The median CEO in Chief Executive’s study did not accrue any equity appreciation over the previous year and the perks were decidedly less grand than the chauffeur-driven limousines of the .002 percenters.

The Journal’s major point, however, that there are few instances where CEOs where not in meetings, is valid. Meetings remain the focus of most CEOs day. Few leaders can rely on written reports or work in solitude on reams of data. Over forty years ago Harold Geneen, the Jack Welch his day, ran the giant ITT conglomerate from a semi-isolated perch on Park Avenue in New York. That simply is not do-able today. CEOs spend more time in meetings because such personal interactions are critical to learning the information necessary to run the company.

The Journal writers distill their analysis down to two styles of running their companies. Style 1 leaders spend much of their time in meetings with employees, and “they tend to spend most of their time in larger groups to include a wider set of departments.” Style 2 leaders “are more apt to spend their time alone, in one-on-one interaction, and outside rather than inside the firm.” Unfortunately , there is no definitive proof of which style yields greater performance over time.

Read: http://online.wsj.com/article/SB10001424127887324081704578233601161769648.html

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