CEO’s are Overpaid – Get Over It
By Al McClain
A recent study by the Economic Policy Institute showed, that in 2005, the average CEO in the U.S. earned 262 times the pay of the average worker, and made more in one workday than the average worker earned in a whole year.
OK, so we’re all outraged. Outraged! In 1965, the average U.S. CEO earned 24x the average worker; by 1989 the figure was 71x; and by 2000 the figure reached 300x. Since then, there was a significant decline and now we’re back on an upswing, with the average CEO now earning almost $11 million per year. And, we’re outraged. Outraged! But, not really.
Typically, in a RetailWire discussion on a topic like this, there would be many postings at the unfairness of it all, how it’s trends like this that are ruining business, and on and on. But we can’t be surprised, or even outraged, because outrage can’t last this long, can it? This has been going on for a long time, and we all know it. And, CEO’s aren’t the only overpaid superstars around. How about entertainers, authors, and sports figures?
The recently released Forbes 100 Celebrity List showed that author Dan Brown earned $88 million in the most recent 12 months, to rank 10th overall on the “celebrity appeal” list, and earned attributes of “intelligent” and “talented.” (These are actual categories.) Kobe Bryant earned $31MM, with attributes of “physically fit” and “talented,” and ranked 25th. The rankings are really a hoot, if you’re looking for something to take your mind off CEO pay (click to view). Donald Trump – #12 – earned $44MM and gets attributes of “aggressive” and “confident.”
For further perspective on the issue, here’s an excerpt from an interview with Ken Lewis, the Chairman and CEO of Bank of America, in Saturday’s New York Times:
Q: How would you explain why Ken Lewis is paid the way he is and receives a $3.5 million annual pension?
A: We want to be very competitive in all of our compensation packages as it relates to the market. Quarterbacks get paid more than some other players. That’s the analogy. We are paying very competitive market rates. It’s nothing more than that. I know that we pay for performance. That’s the way it should be. I hate the fact that some have abused the system and have given all CEOs the black eye. I think we have a very appropriate compensation policy.
Moderator’s Comment: What companies (retailers or suppliers) would you cite as having great top management that is compensated well because they deserve
it? Are there “best practices” in terms of CEO and top management pay such as pay for performance or a maximum CEO to worker pay ratio that you’d recommend companies in our industry
adopt?
Rather than be “outraged” at CEO pay, let’s leave that to the pundits who solve societal problems. Instead, let’s look to CEOs in the retailing industry
who are well paid but are performing well and deserve what they make because they are driving successful companies that serve consumers well. –
Al McClain – Moderator
- CEO-worker pay imbalance grows – Economic Policy Institute
- A Big Bank Is Betting Big on Expansion – NY Times
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8 Comments on "CEO’s are Overpaid – Get Over It"
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This survey and many like it, forget to paint the entire picture. Some of the highest paid folks in the industry are not the CEOs, but their team, especially the VP of Sales and Marketing. These folks at Microsoft and Oracle easily eclipse the CEO for the value and revenues which they bring to the organization. They are being compensated on a PFP program which is directly linked to their performance. All too often these survey’s forget that it is the team which achieves corporate performance, and that there are others on the team who are often better compensated, for better reasons than just stock performance or cost control. Either way, these folks are getting paid what the market will bear, and should be paid for the value which they bring to the organization.
Michael S. Jeffries was paid about $4 million last year, according to the Abercrombie & Fitch proxy statement. His 1 million shares of stock, granted to him in 2003, become vested 12/31/2008, if he still is working for the company. That stock, worth about $27 million in 2003, is now worth over $57 million. So the stock more than doubled in 3 and half years. That’s why he’s worth it.
The issue is pay for performance. As Mr. Livingston said, if the CEO is performing well for the shareholders, more power to him/her. Unfortunately way too many CEOs get paid well whether they do the job well or not.
I’m not going to name names. Let’s just say if the company is successful and the employees, customers and stockholders are happy, then the CEO deserves every penny. I work for a lot of privately held companies and don’t have the first clue what the CEO earns. It doesn’t matter and I don’t care. All I know is the employees and customers are happy. When everyone is happy, no one cares what the CEO makes. But when things turn sour, one of the first things to criticize is CEO pay. For example, Winn-Dixie, the poster child retailer for failure, has a CEO who makes more than the CEO of Publix, the poster child retailer for success.
Ok, I will name names. Whatever Wegmans paid Robert Wegman, he deserved every penny. Any CEO who gives it all back after he passes on is a perfect example of a CEO who could never be overpaid.