Wednesday, August 31, 2005

CEO Pay: Obscene

CEO pay: Sky high gets even higher:

In 2004, the ratio of average CEO pay to the average pay of a production (i.e., non-management) worker was 431-to-1, up from 301-to-1 in 2003

These levels are ludicrous. I could accept maybe Bill Gates, Warren Buffett and a handful of others getting these types of pay packages but those who you might think deserve such high pay don't receive such large pay.

In 1990, for instance, CEOs made about 107 times more than the average worker, while in 1982, the average CEO made only 42 times more.

The cumulative pay of the top 10 highest paid CEOs in the past 15 years totaled $11.7 billion.

The report also compares the growth in average CEO pay - which was $11.8 million in 2004 - to the growth in the minimum wage. Had the minimum wage risen as fast as CEO compensation since 1990, the researchers calculated, it would now be $23.03 an hour instead of just $5.15. And the average production worker would be making $110,126 a year instead of $27,460.

Some might try to argue that these CEO's are being paid this due to the free hand of the market (supply and demand). I find it crazy for people to actually believe this. These pay rates are being made by board of directors who seem to be more interested in helping out the "Brooks Brother Bureaucrats" that they play golf with. Many of these companies are paying large percentages of what would otherwise be the companies total profit to their Brooks Brother Buddies who then support them (through high paid board seats, sitting on boards of their companies and approving similar exorbinant pay etc.).

I would love to see a report showing the executive pay of these overpaid CEO's compared to the net profit of the companies (showing what percentage of the profits are being paid to these individuals compared to the stock holders and other workers). At some point I will do this myself if someone else doesn't. Obviously unjustified practices suffer when those practices are publicized.

And I believe the more publicity of exorbinant packages the better. In my opinion, this harmful practice is due to a few people taking the profits owed to other workers and shareholders and giving it to their pals. You can certainly see example after example where these payments don't seem possible to justify as a wise use of companies money. However, this change will not be easy, the Brooks Brother Bureaucrats have an incentive to continue the current system where they can enrich themselves by enriching their pals.

My previous comment on Dan Gilmor's blog post (Mar 2005) on this topic:

Actually it probably didn't influence their decision much. They probably would get the same payouts whoever they sold to. That seems to be part of doing business in America.

Hopefully, at some point, the cry over the shareholders money going to the "brooks brother bureaucrats" (my name for high paid USA bureaucrats who pay huge amounts to their friends and colleagues) will greatly reduce this practice. I am glad to see you point out these payments to your readers.

I don't believe those payments are justified. It is especially disconcerting to see the people who claim competitive forces require those jobs filled by people who don't wear expensive suits, and play golf with them at their country club, have to be shipped overseas pay themselves huge amounts. It is amazing the ridicules payments that are made to so many high paid American executives. In my opinion, very few who are paid over $1 million are worth it (though some are).

Yes they are able to get someone to pay them such an amount in the marketplace. But I think those that authorize the payments, do so, not in the interest of those they represent but to make their own lives easier (so they can get reciprocal unjustified large payments). I believe we are slowly reducing the level of this behavior, but that may be more my hope than reality.

The 5 most Outrageously Overpaid CEOs

No comments: