CEO Pay Debate: Who Knows Whether $40M is Too High?

Washington Post business columnist Steven Pearlstein thinks CEOs are overpaid, and writes about it unconvincingly in his column "Off Balance at the Top." He also appeared on CNBC's "Kudlow & Company" Wednesday night in this segment and said, "As a general rule, CEO pay levels are too high. $12 million is not outrageous, but $30 million, $40 million, $50 million, that's too high." Don Luskin then pretty much destroyed Pearlstein.

Comment 1: I guess that means that means Oprah is overpaid at $260 million, along with Tiger Woods ($112 million), Johny Depp ($92 million), Howard Stern ($70 million), Oscar De La Hoya ($55 million), Phil Mickelson ($51 million), Shaquille O'Neal ($35 million), Kobe Byrant ($34 million), etc.

Eugene Fama: If it’s a market wage, it’s a market wage. They may be big numbers; that’s not saying they’re too high. It’s easy to say that people are paid too much, but when you’re on the other side of the fence trying to hire high-level corporate managers, it turns out not to be so easy.

Thomas Sowell: Many people who have never run one business for one day are nevertheless confident that they know corporate CEOs are not worth as much as they are paid.

Comment 2: There's a very good reason for that average CEO pay has risen by a factor of about 7X from 1980 -2003: there was about a 7X increase in the market capitalization of large companies during that period (see red line in graph below for market cap, vs. blue/green lines for CEO pay), according to this forthcoming QJE article by NYU business professors Xavier Gabaix and Augustin Landier.

Comments

[SivBum]

CEO paid pegged to market Cap? That's funny! The millions of workers in those companies with 8X market caps must be rolling in dough now. LOL! What twisted logic is that?

[User 168306]

EXAMPLES ARE RIDICULOUS. TIGER WOODS WINS HIS AGAINST COMPETITION AND ITS PAID FOR BY THOSE WHO WANT TO WATCH. IF HE WERE AS LOUSY AS SOME CEOS HE WOULDN'T WIN A DIME.

[jackooo]

Why are the CEO types giving options? To produce more profits?
Well what do the workers get to produce more profits?
The workers get a salary. Period. If they do not produce they are fired.
The management team gets aircraft to fly in. Options worth more than their salary. Total paid health benefits for their life. 30% increase in salarly each year. ETC. ETC.
If management does not produce a severance package is given to them worth millions. Is something wrong????

[jackooo]

One step further. If the company goes into bankruptcy the management team is paid more compensation than when they were killing the company. The excuse is we need them for the transition. Say what???
The example above for Tiger Woods and Oprah are just plain dumb. They are individuals and I have no investments with them. Besides that they produce profits for companies.

[nukldrager]

Reportedly the former ceo of BSC walked away with $61 million after selling his shares. Anybody have a better idea than capitalism?

[JohnB]

Why the golden parachutes, then? Executive compensation determined by corporate boards is a circle jerk.

[Malkiel]

Jackoo has a good point--paying the line workers an incentive for measurable quality or productivity gains would probably enhance a company's bottom line more than any executive decision-making and probably still cost a fraction of ceo pay. So why would an idea like this not be considered? Because ceo's are part of the capitalist class and have the power to make the system work for them, employees don't. When poor people need health care or grocery money, the propagandists for the upper classes deride the help as "entitlement"; when middle-class people are in danger of losing their homes to mortgage problems, they wag their finger and talk about "moral hazard"; but executive pay practices violate the concept of "moral hazard" and their perks are clearly functioning as a form of entitlement, but nobody can call them that. The only reason there's no class war going on in this country is that the upper classes are still holding the armory...