CEO Pay

Apparently, the Democratic Congress is trying to "take on" high executive pay with some kind of punitive taxation plan.  This fits well into a class of legislation I would describe as "useless at best, probably counter-productive, but of high symbolic value to our base," something to which both parties are unbelievably susceptible.

I'm confused, by the way, about why exactly I should care how much CEOs are paid, particularly for executives that don't work for companies in which I own stock?  I don't think Paris Hilton, George Clooney, or the CEO of Home Depot are worth what they are paid, but I don't know how it affects me except perhaps for some simmering envy.  Does anyone with above a 5th grade education really believe that they will pay one cent less for gas or a refinery worker will make one dollar more if the CEO of Shell is paid less?

I do understand why the shareholders of Home Depot might be pissed off about what they were paying their CEO, or more accurately, what they paid him to go away.  I am sure the Arizona Cardinals felt the same way about Dennis Green.  Now, if Democrats wanted to suggest that shareholder voting and corporate governance rules needed to be amended to make it easier for shareholders to hold managers accountable for bad decisions and to overrule sweetheart deals between buddies on the board, I am very open to listening.

  • Bob Smith

    The Case for Limited Shareholder Voting Rights by Stephen Bainbridge (www.professorbainbridge.com)

  • Don Lloyd

    Warren,

    "I do understand why the shareholders of Home Depot might be pissed off about what they were paying their CEO, or more accurately, what they paid him to go away...."

    No, this doesn't make sense either. If you take the CEO's total pay and divide by the number of outstanding shares, the total effect on shareholders is likely lost in the noise of every day's trading, if not in the b/a spread.

    It would be rare indeed for a public CEO's pay to be significantly material for shareholders. It is almost impossible to overpay a CEO who can add value to the price of a stock. OTOH, a CEO who subtracts value is overpaid if he works for free.

    Regards, Don

  • BobH

    When Nardelli got canned at Home Depot, I was reminded of the sports mogul (may have been Steinbrenner) who was asked if he was upset at the high cost of talent. He replied that he didn't mind paying for talent, what he resented was the high cost of mediocrity.

    That's in line with Don's comments -- I see nothing wrong with huge salaries for CEOs who meet objectives. Those who fail should get a severance package similar to that provided to a store manager who misses sales quotas.

    The problem with packages like Home Depot's, though, is that they provide lottery-type pay-offs for failing.

  • A. Flood

    I agree. Who cares what they get paid. More power to 'em. I know that at no point in my life will I ever say "No no, you don't have to pay me that much.". As long as the bargaining process is legit, I think you deserve what ever you can get.

    I think the whole Nardelli issue is retarded. Sure his changes in management didn't mesh well with the culture, but what people don't understand is that the company developed into a mature company during Nardelli's time. When he took over, it was earnings were priced at 40x, now they are slightly below the market's historical average.

    I would sure hate to be the CEO of Google when it matures. With that said, I would certainly take one for the team with the right parachute.

    Couldn't the Board have brought him on for the sole purpose of heading the company through the transition from growth valuation to mature? Someone has to take a long walk off a short pier. You pay me enough and I'll take the walk. I'll walk straight out of headquarters to my new Ferrari 430, drive it to the airfield, walk on to my Leer jet and fly off to my new Caribbean island...

  • markm

    "Does anyone with above a 5th grade education..." The trouble is, most college graduates have forgotten how to do 5th grade arithmetic - and journalism majors are among the worst for college-"educated" innumeracy.

  • JoshK

    How come no one is pushing for an special tax on Actor pay?

  • Jim Collins

    Let's see this for what it is. A public relations ploy. The Democrats do this all of the time. They don't care what the actual outcome is, all they care about is the publicity they get and the possible votes they may obtain.

  • TCO

    You shouldn't care wrt the whole envy trap. But you should care, that this indicates an issue with agency effect. Because there is a limited market for control of corporations (because of laws not forbidding poison pills, allowing execs to essentially hijack companies), execs are more motivated to play internal political games with subordinates, butter up their boards, etc. than to really create value. In some ways, this is addressed by private equity (which is growing), however it still is a loss to society that we do not have well-functioning public corporations.