Why Comp Criticism Is Valid
October 24 2007 by Chief Executive
You sometimes get it right and sometimes not. Your article “Is CEO Comp Criticism Valid?” (September 2007) isn’t balanced, starting with the sentence that it is even possible that big company CEOs haven’t been getting the rewards they deserve.
Any statement that generalizes about a whole group or about the median is lumping too many diverse situations into oversimplifications. If there are excesses or generalizations that bear analysis and discussion, they should deal with the top decile or quartile of very highly paid big company and hedge fund/private equity CEOs. Obviously, most CEOs are not overpaid. If you did so, you would be probably dealing with total annual comps (earned or not earned) in the $25 million to $500 million league, with much of it also tax-sheltered more effectively than for the rest of their employees.
Many of those high payouts do not correlate with truly unusual, sustainable performance and unique leadership, and many are big personal rewards without much big personal, entrepreneurial downside risks having been taken (viz. McKinnell, Grasso, Nardelli, etc.).
Large executive stock options and parachutes are one-way streets that do not align with shareholder risk/rewards because there is no executive downside risk. In fact, if the company doesn’t do well, the executive gets the next traunch at a lower exercise price. If he’s fired for poor outcomes, he will often get an oversize severance reward for his poor outcomes.
You deride the current SEC focus on transparency and perks. What I call gross past distortions (including parachutes, pensions, etc.) came about because of the lack of transparency.
I enjoy the INfacts you now publish. My favorite is the fact the IRS spends 22 cents for every dollar collected.
I enjoyed John Kador’s INfact. Depressing? A little. Interesting? Very. I am currently putting all of my office chocolates in clear plastic containers.
Reed K. Holden
Founder, Holden Advisors Corp.
INfact is intriguing and from my perspective, highly informative. As a former CEO, I am totally in tune with the notion that a CEO is constantly bombarded with information. Let’s see more compilations by John Kador in the future.
Executive Director, ManyWorlds
Former CEO, SAI International
[Ed Note: INfact is now a regular feature in CEO chronicles]