CEO, compensation, pay, fair, fairly, salary, executive
The debate over appropriate compensation packages for CEOs has become increasingly divisive within the past decade and has been largely fueled by the media's speculation and reporting as to the cause of America's economic challenges. We are skeptical that those hailing for CEO compensation reform truly understand the economic and political complexities with which corporations must deal.
Compensation terms are determined by each company's Board of Directors (BOD) and by utilizing established metrics for performance evaluation. Metrics on which Board's rely more heavily than merely the ratio of CEO pay relative to average worker's pay consist of meeting or exceeding internal company metrics, company performance relative to industry competitors and special awards or recognition received. We believe that the BODs are most qualified to determine the value of an employee's contribution to the company and are in positions of responsibility to quantify that value into terms of a currency.
CEOs are highly-intelligent and possess advanced degrees from the world's elite academic institutions and anticipate a return on their investment. They also commonly spend at least 70 hours per week behind their desks and undertake the greatest responsibilities within the company. Individuals with such commitment and accomplishments in their backgrounds warrant compensation packages greater than that of employees with lesser skill sets and responsibilities.
The impact of the chief executive on the success or failure of a company is broader than any other employment position and placing a ceiling on compensation is akin to placing a ceiling on the CEO's motivation. Incentive-based compensation packages for CEO's align the executive's interests with those of the firm's owners. Although compensation numbers have grown in the past 30 years, so too has the performance of their companies.
CEOs do not procure the largest professional salaries. Practitioners within the finance industry and entertainment stars reap the windfall compensation packages.
We conclude that external intervention on matters germane to CEO compensation is unwarranted. Our "capitalist" economic system operates with the freedom allowing the markets to determine prices. We conclude that it is also appropriate to allow those same markets to determine the value of executive leadership.
[...] The higher within a corporate hierarchy a decision reaches the more ambiguous and divisive the strategies, which often results in greater disagreement. The CEO is charged with making the tough decisions, and that executive reaps the praise or disdain with the outcomes. One misstep, or a variety of them, can ripple from minor crises to the downfall of the corporation (i.e. Bear Stearns, Lehman Brothers, Enron, WorldCom, Arthur Anderson, etc.). I surmise that leisure is difficult for CEOs with such a burden to bear. [...]
[...] Music industry reports indicated that U2 made $260 million in gross receipts on their 2005 world tour, which equates to million per show or million per hour. Motley Crew by comparison realized $33 million in revenue for a similarly-sized tour and realized revenue of merely $400,000 per show or $200,000 per hour. It is not the CEOs who reap the largest compensation packages. Where are the reform-minded individuals that argue against prominent athletes, rock stars and movie celebrities' pay terms? CEO's Provide Significant Philanthropic Benefits It seems appropriate that the individuals who procure the largest salaries are also the world's biggest philanthropists. Well, it is true. [...]
[...] The world's largest corporations are willing to pay plenty. Average CEO compensation in 2009 was $9,806,707 for S&P listed companies, $17,988,751 for Dow Jones Industrial Average (DJIA) companies and $7,779,795 for Russell 1000 companies. Although the compensation numbers have gone up in the past 30 years for executives, so has the performance of their companies. The chart below illustrates how closely CEO compensation is aligned with the performance of the Dow Jones Industrial Average. Boards indicate the relevance between corporate profits and merit-based pay to the company's commander-in-chief. [...]
[...] It is an issue that has warranted, some argue, action by the U.S. Congress in the form of legislation passed in 1993 that resulted in creating our modern, variable compensation models consisting of annual salary, bonuses, stock options, stock grants and various other executive benefits. Congress passed the Consolidated Omnibus Budget Reconciliation Act (COBRA), which placed limits on the corporate tax deduction for compensation packages paid to CEOs as well as for the next four highest paid executive officers to million. [...]
[...] CEOs do not procure the largest professional salaries. Practitioners within the finance industry and entertainment stars reap the windfall compensation packages. We conclude that external intervention on matters germane to CEO compensation is unwarranted. Our “capitalist” economic system operates with the freedom allowing the markets to determine prices. We conclude that it is also appropriate to allow those same markets to determine the value of executive leadership. History of CEO Compensation: The Million Dollar Cap Considerations of fairness in determining executive compensation packages have been a topic of vigorous debate, particularly since the economic challenges realized within the U.S. [...]
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