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CEO compensation makes me sick...

Discussion in 'BBS Hangout' started by BrianKagy, Jun 9, 2002.

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  1. BrianKagy

    BrianKagy Member

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    This is the one issue on which I just can't toe the conservative party line.

    CEOs bail out with big bucks, from today's Austin American-Statesman.

    Believe me, I am extremely familiar with the arguments in favor of unchecked, market-driven CEO compensation. But I simply can't accept them as anything other than partisan rationalization of a system that is, to use a word that's both nebulous and inflammatory, unfair.

    That word probably sets all sorts of red flags off for conservatives. "Life's unfair!" shout the Rush Limbaugh crowd. "Stockholders have the responsibility to enforce fairness-- the CEO make what the stockholders consider to be a fair salary," explain the Wall Street Journal crowd.

    "Communist!" shouts my granddad. :)

    Life is unfair, but that is no justification for human contrivances that operate unfairly. We're not talking about a twister that touches down in the midst of a trailer park, eliminating several of the aforementioned Limbaugh crowd. We're not discussing the distribution of genetic advantages, such as intelligence or beauty.

    We're talking about the compensation of CEOs in a market economy. According to the article, "(i)n 1973, (Graef) Crystal (a former compensation consultant) said, the average CEO made 45 times more than the average worker at his company. Now, the average CEO makes 450 times more than the average worker."

    That is patently unfair, and it's within our grasp to make it fair.

    Of course, that's the tricky part. Myself, I'm not sure I'd favor government intervention, and I'm not naive enough to think that the CEOs and Boards of Directors are going to wake up one morning and say, "You know, Bob, you make $3.5 million a year. If we cut your salary by $500,000, we could give 100 workers each a $5,000 raise. And $5,000 means a lot more to someone making $30,000 a year than $500,000 means to someone who's already wealthy enough to be set for life." So I'm not sure what the answer is.

    I know this much, though: situations like this one make me sick.

    Bernard Ebbers, chief executive (and founder, it should be pointed out-- BK) of WorldCom Inc., was ousted from his job a month ago. But he got something better than a gold watch for his years of service: $1.5 million annually for life -- as long as he keeps up with the payments on his $400 million in loans from the company.

    $1.5 million annually. Thank God that Ebbers won't be expected to live off of either the fortune he's amassed, or a more reasonable pension of $50,000 a year. Were he to do so, that $1.5 million could be used to pay 30 workers $50,000 a year. Much easier just to lay them off.

    Anyway, I will open it up for discussion. Is the system broke, unfair...? If so, how should it be repaired?
     
    #1 BrianKagy, Jun 9, 2002
  2. Major

    Major Member

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    I agree with you to an extent. I don't really have problems with CEO's of profitable and successful companies making ridiculous amounts of money. I'm more concerned that CEO's who suck (or whose company sucks while under their leadership, possibly due to other circumstances) get these ridiculous severences or what-not. Pay them whatever you feel they deserve while they work for you ... but don't pay them millions of dollars to be fired. CEO's should be paid based on performance. At least this way, there's some incentive for the CEO to run the company properly. Like you said, the example you cited sucks. Yeah, he's the founder -- and he was rewarded for that with owning tons of stock and making lots of money while working for WorldCom. No need to keep paying him after he's basically fired.

    As for fixing the system, good question. From what I understand, a big part of the problem is that the Board of Directors and CEO are supposed to be counterbalances, with the Board setting compensation and looking directly after the shareholders. Today, it seems that the Board and the CEO are more closely intertwined and the boards look after the CEO's as much as anyone else.
     
    #2 Major, Jun 9, 2002
  3. BrianKagy

    BrianKagy Member

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    That's an excellent point, one I don't hear raised often enough. A lot of the defense of CEO compensation is phrased as "Well, he created the company from scratch, he deserves what he can get".

    OK, fine, but at what point has the CEO been compensated enough...? Ebbers is now going to make a "salary" 30 times that of the average worker, for the rest of his life. That's in addition to the fortune he's surely amassed through, as you point out, stocks and standard CEO compensation.
     
    #3 BrianKagy, Jun 9, 2002
  4. Jeff

    Jeff Clutch Crew

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    BK: Interesting. There was a HUGE front-page story on this in the Chronicle today. <a href="http://www.chron.com/cs/CDA/story.hts/topstory2/1445169">Here's the link.</a>

    I don't have a problem with privately owned companies paying their top exec's well. I would argue that if a business has employees all making below what they could or should while the CEO gets rich, that is a problem. Companies that use cheap day labor, for example, can often reap the rewards of a system that benefits them unfairly.

    Where I totally agree is with publically-traded companies. Not only do these companies have a bearing on stockholders, but they have an impact on the market as a whole.

    I was just reading the other day that the stock market plunged because people were worried about war. Huh? That would be like me not buying anything because I was afraid of war. Yeah, that's REAL American thinking.

    It seems that much of the system is not ruled by logic or fairness but rather emotion and greed. I'm with you even though I'm not sure what to do to change it. We have placed profits in front of people in the line of importance for a very long time. It is not that new and it is just getting worse.
     
    #4 Jeff, Jun 9, 2002
  5. Jeff

    Jeff Clutch Crew

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    Just read this and I have to say this is something I wonder too. When is enough really ENOUGH? Is $10 million, $100 million, a billion enough? When do you start looking at your paycheck and think, "Eh, I'll just put it in the pile with the rest of them." ?

    Also, another question is when does the salary become out of line with the actual work? Most CEO's sit on the boards of other companies. I'll use Steve Jobs because I like Apple so much. He runs several companies and sits on the board of several others. Do his software engineers who are being paid $75K per year have time to take out of their 80-hour week to sit on the board or run another company?

    Finally, most of these guys are infinately replaceable. One guy goes, another comes on. Yet, they command these un-real salaries. It isn't like an athlete who has 10 years AT BEST for a career. These guys could do this for 30 or 40 years if they play their cards right.
     
    #5 Jeff, Jun 9, 2002
  6. BrianKagy

    BrianKagy Member

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    To be clear, I'm not arguing against CEOs making huge salaries. It's a valuable position, so they're going to make a lot of money.

    What aggravates me is the piling on. "OK, Bill, you're our CEO, so I think you should make 250 times what Joe Schmoe makes. So your salary will be $7.5 million.

    Now, I know that's kind of a lean income for someone of you stature, so we'd also like to loan you $125 million at one-quarter the going interest rate. If you have to quit or if we let you go, don't worry-- we'll just forgive the loan.

    Also, I was thinking: stock options. Those will make sure you have an incentive to make the company profitable, and we trust that you would never manipulate the company so as to make your millions of discounted options even more valuable. Let's see, stock's trading at $26.50 a share, so let's set your option value at $5.50 per. Oh, and we'll cover your taxes on the options when you exercise them.

    Oh, and I almost forgot-- we have to give you a plain old cash bonus on top of everything else. After all, the company met its expectations for the year. I think $10 million is fair."

    Etc etc etc ad absolute nauseum.
     
    #6 BrianKagy, Jun 9, 2002
  7. Sonny

    Sonny Member

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    from an April 30th, 2002 CNN Money article

    http://money.cnn.com/2002/04/30/technology/ebbers/

    At one time this guy was worth over 1 billion dollars, with the stock trading at it's highs in the 60's. He probably owes more than he is worth now, I wonder what the payments are on his 375 million in loans? I bet 1.5 million a year barely helps... Not that I feel bad for him, I think it is kind of funny. WTF do you spend all that money on? It is ridiculous what they are paid. I would love to see these company boards crack down on the CEO's.

    They are overpaid more than baseball players. I would love it if my CEO took a 100,000 pay cut so that 100 employees could get a 1,000 raise. This would be a good moral booster for any company, but I guess the CEO's can't get by with just a half a million dollar house, a lexus, and a porsche. :rolleyes:
     
    #7 Sonny, Jun 9, 2002
  8. Gutter Snipe

    Gutter Snipe Member

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    Executive compensation is ridiculous. It's obvious that the system is broken when positions that could be filled by many different people get salaries that seem to say that there is only one person for the job.

    Would setting the salary to be 20 times the average company salary be so bad? The CEO would then be motivated to raise people's salaries - although it wouldn't prevent laying people off to make this possible.
     
    #8 Gutter Snipe, Jun 9, 2002
  9. Jeff

    Jeff Clutch Crew

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    When I think about all that money and CEO's, I wonder what would happen if they all went on strike. Would anyone notice?

    Now, if all the garbage collectors went on strike, how many of us would notice?

    About sums up my feelings. :)
     
    #9 Jeff, Jun 9, 2002
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