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FRED
06-22-06, 02:17 PM
CEO Paycheck: $42,000 a day (http://money.cnn.com/2006/06/21/news/companies/ceo_pay_epi/index.htm?cnn=yes)
June 22, 2006 (CNN Money)

The top dogs at large companies make big bucks, no surprise. But it's always a little jolting to see just how big those bucks are relative to the paycheck of the average Joe.

Last year, the average CEO of a company with at least $1 billion in annual revenue made $10,982,000, or 262 times what the average worker made, according to an analysis by the Economic Policy Institute (EPI) released Wednesday.

Put another way, the average worker -- who earned $41,861 in 2005 -- made about $400 less last year than what the average large-company CEO made in one day. That assumes 260 days of pay (52 weeks x 5 days a week).

AntiSpin: Unfairness aside, it's a mystery why shareholders put up with this when compensation should be tied to share price, and thus compensation in stock versus cash. That's a lot of cash to take out of a business, even a $1B one. How much is that $10M as a percentage of profits?

blazespinnaker
06-22-06, 07:39 PM
I've probably said this too many times on this forum, but I'm all for CEOs earning whatever they can ... what I am not for is when they spend all that money on luxury items, like big houses and expensive vacations.

For example, look at Bill Gates and what he's doing with his money (though his house was unfortunate..) Or Warren Buffet and what's he's going to do with his money after he dies.

Less income taxes, more consumption tax is my motto.

jk
06-22-06, 08:49 PM
the examples of gates and buffett point to the problem. these guys are owners, not just managers. they therefore are not incentivized to hijack corporate profits.

stock options were supposed to align the interests of managers with owners, but of course they just incentivized managers to juggle the books to goose the stock price, and backdate the options for a little extra k'ching. the question raised earlier is why do stockholders put up with it. the answer is that most institutions are not willing to be activist shareholders, individual stock owners are too fragmented, and corporate boards are incestuous.

a rational compensation system would pay managers a [relatively] modest salary and restricted stock that vests in slow tranches over many years. THAT would make managers think like owners.

EJ
06-22-06, 09:13 PM
Bingo! That's exactly as it should be. What will it take to make that happen?

p.s. iTulip is very fortunate to have you as a member.

jk
06-22-06, 10:11 PM
Bingo! That's exactly as it should be. What will it take to make that happen?
i sure don't know what it would take to put such a compensation system in place. it would only be relevant and important for society if it were pervasive. a single company adopting it wouldn't do a lot, but of course might set an example and perhaps start a trend.

so how would it happen? either from above or from below.

from above: disastrous economic implosion leading to major financial reforms as occurred after the '29 crash and subsequent depression. major fingerpointing at corporate malfeasance as a contributor or cause. [likely related to daisy chain derivative explosions contributing to the financial catastrophe.] puritanical social values emerging out of economic deprivation. more enrons, worldcoms, global crossingss and tycos. i think it would take pretty much all of the above [and probably a miracle as well] for government or its agencies to produce regulations requiring compensation structured as described in my last post.

from below: a good governance movement following market devastation. some sense emerges that the corporations which were looted by their managements did not fare as well. institutional investors begin to protect their own interests by directing investments to better governed corporations and by becoming activists in imposing changes on others. this route seems marginally more plausible.

frankly, i'm not hopeful.

chikungchi
06-23-06, 07:26 AM
At least part of the problem is that the corporate "mahogany row" (senior, highly over-paid executives) is entrenched with the self-serving members of the "network". Everyone protects the system because the system lavishes so much wealth and perks upon them. Very fewe would be willing to break ranks because it woudl cost them $$$.

I have spoken to several folks who qualify under this description. Almost to a person, they feel it is their God-given right to recieve these extraordinary packages and if they were to be asked to accept only 10 times what the average worker makes (instead of several hundred) they would go elsewhere where their "rights" would be observed. To make matters wosre, the Boards of these companies are all incestuous with each other and they are not about to rock the boat.

I think the only answer is the courts. Civil suits will have to be brought by the share holders against the Boards and the senior executives for the misuse of company funds. If a few Board members and other executives are sued into poverty over this, it will send a clear message to the others and reform might take place. I really hate bringing in the lawyers or the court system, but at this point it may be the matter of the lesser or two evils.

Rajiv
06-24-06, 07:17 PM
Getting a good living wage will be harder in the near future, as CEO's try to increase their salaries by cutting the labour force, and ask unions to "bite the bullet."

This has led to the situation that CEOs earn 262 times pay of average worker. The ratio of course is much higher if you take the lowest paid full time worker. I think it is somewhere upward of 600:1 Used to be around 30:1 in the 1960's. Here is the top decile income share in the United Sates, 1917-2000.

http://agonist.org/files/active/0/top%20decile%20try%202.jpg

From Income Inequality in the United States, 1913-1998, Pikketty and Saez. (http://emlab.berkeley.edu/users/saez/w8467.pdf)
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jk
06-25-06, 10:09 AM
looking at the chart posted by rajiv, above, i note that there were some pretty profound social and political happenings, both in the u.s. and globally, the last time incomes got this concentrated in the top decile. on the other hand, the distribution itself stayed up in this range for quite some time, from 1925 to the crash, to depression, to the u.s. entry into ww ii.

lobodelmar
06-29-06, 05:10 PM
I am pretty cynical about anything ever changing on this issue. Directors are on compensation committees for each other, they have incentive to pay each other well despite stock performance... even the most tuned in organizations (CALPERS, ISS, etc) don't seem to have enough oomph to change how CEOs are compensated. If large mutual funds can't make changes like this, how will it ever happen?

I went to a very conservative, quant-focused business school, and all of the profs there aped the same old line around rational markets and markets coming eventually to equilibrium. And yet it continues.

I agree with JK, that you can't look at owners and recruited CEOs in the same way. We need more execs that build something from nothing, who are invested in the company's success for life but are well compensated...and fewer people like Grasso at NYSE, who yes, did a lot of work to grow NYSE< but also expensed every coffee he drank and sat back while his buddies handed him $140 million in retirement bonuses.

jk
06-29-06, 07:34 PM
the extreme disparities in income are part of the u.s. becoming more like a 3rd world country. the global labor arbitrage must drive compensation down here, even as it raises compensation in ldc's [less developed countries]. inflation coupled with wage stagnation drives down the real incomes of the lower deciles [isn't that a nice way to say it? "lower deciles"], more people go without health insurance, and social mobility diminishes. extreme income disparities and low social mobility are not a recipe for social and political stability.

[there is less social mobility- from the economist "Income inequality is growing to levels not seen since the Gilded Age, around the 1880s. But social mobility is not increasing at anything like the same pace: would-be Horatio Algers are finding it no easier to climb from rags to riches, while the children of the privileged have a greater chance of staying at the top of the social heap.... Most Americans see nothing wrong with inequality of income so long as it comes with plenty of social mobility: it is simply the price paid for a dynamic economy. But the new rise in inequality does not seem to have come with a commensurate rise in mobility. There may even have been a fall.... In the 1990s 36% of those who started in the second-poorest 20% stayed put, compared with 28% in the 1970s and 32% in the 1980s. In the 1970s 12% of the population moved from the bottom fifth to either the fourth or the top fifth. In the 1980s and 1990s the figures shrank to below 11% for both decades. The figure for those who stayed in the top fifth increased slightly but steadily over the three decades, reinforcing the sense of diminished social mobility."]

metalman
06-29-06, 09:34 PM
Getting a good living wage will be harder in the near future, as CEO's try to increase their salaries by cutting the labour force, and ask unions to "bite the bullet."

This has led to the situation that CEOs earn 262 times pay of average worker. The ratio of course is much higher if you take the lowest paid full time worker. I think it is somewhere upward of 600:1 Used to be around 30:1 in the 1960's. Here is the top decile income share in the United Sates, 1917-2000.

http://agonist.org/files/active/0/top%20decile%20try%202.jpg

From Income Inequality in the United States, 1913-1998, Pikketty and Saez. (http://emlab.berkeley.edu/users/saez/w8467.pdf)
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too bad this time with Iran already hold of nukes (the story everyone forgot http://www.washingtonpost.com/wp-dyn/articles/A57465-2004Nov17.html and http://www.cbsnews.com/stories/2004/11/22/world/main656983.shtml) it's gonna get really "leveled" this time.