You know, every year, I get all hot and bothered around this time because there is always a flood of breathless articles about the stupendous rise in CEO pay and benefits. And I know a lot of good people who spend inordinate amounts of time trying to get shareholders to approve resolutions to have some "say on pay" or some other meaningless statement about what the pigs at the trough are pocketing. But, at the end of the day, I think it's time just to say: give the CEO whatever pay he wants IF...and I'll tell you what the "If" is in a sec.
So, first, to wet your appetite:
Some received substantial raises: David N. Farr, the C.E.O. of Emerson Electric, the industrial giant, took home $25.3 million, up 264 percent from 2012. (Mr. Farr got most of his pay, $21.6 million, in stock.) Mark Polzin, an Emerson spokesman, said that if the company is doing well, the structure of the package might cause a spike in Mr. Farr’s pay every few years.And, from Gretchen Morgenson:
The stocks of many companies posted robust performance in 2013, which could also help drive C.E.O. pay higher.
The pay of John T. Chambers, the long-serving chief executive of Cisco Systems, jumped 80 percent, to $21 million, most of it in stock. The strong returns on Cisco’s shares — up 63 percent during the company’s 2013 fiscal year — played a substantial role in determining his raise.
Rupert Murdoch of 21st Century Fox made $26.1 million for the 2013 fiscal year, during which his company’s stock rose 46 percent. Disney’s shares didn’t fare quite as well, gaining 23 percent, and its chief executive, Robert A. Iger, was given a 7 percent pay cut. Still, he made $34.3 million, the second-highest total in the survey. Zenia Mucha, a Disney spokeswoman, said in an email that 93 percent of Mr. Iger’s compensation was based on performance.
Year after year, as executive pay continues its inexorable climb, it’s amusing to watch corporate directors try to justify the piles of shareholder money they throw at the hired help. Check out any proxy filing for these arguments, which usually center on how closely and carefully the executives’ incentive compensation is tied to the performance of company operations.But, all this is just a scam. All the metrics and justifications are simply rationalizations for handing people something they don't deserve. It's legalized robbery, with absolutely no economic rationale--NONE--other than the CEOs have the power to manipulate the system.
But pay for performance is only as good as the metrics used to determine it. And as a recent study shows, some metrics — including the most popular — are downright ineffective at motivating executives to create shareholder value.
Most of the hard work people do to have "say on pay" or protests about CEO pay is honestly not worth it. Usually, the resolutions lose. When they somehow win, it's usually advisory.
When I wrote my book “The Audacity of Greed”back in 2009, I had the good fortune to talk with Graef “Bud” Crystal who was once one of the country’s premier compensation consultants—the guy who would be hired by CEOs to come up with compensation packages. He was there in the very first days of what would become a broad scam. He told me back then:
“In 1970, one CEO hired me and said, ‘we don’t have a bonus plan and do we need one?’” recalls Crystal. “I did the study and I went back to the CEO and said ‘yes you do need a bonus plan. But we have a problem area. You are making $150,000-a year and the problem is that the $150,000 is equal to the salary and the bonus to what your competitors are paying so we have to cut your pay to $100,000-a-year and then we can put in a bonus.’” Crystal laughs. “It was like a scene from The Exorcist where ice formed on the windows…he started arguing about the findings and he finally said ‘let me say this to you this way: who do you think is paying your bills anyway?’ I replied, ‘If I recall correctly the checks were drawn on the corporate account, not your personal account so the shareholders are paying me, not you.’ The meeting ended quite quickly.The point is the whole game is fixed. The CEO stacks his board with cronies, pays them $20,000-per-meeting board fees and, then, makes sure his cronies approve pay packages — the real money is in the pensions and deferred pay. It’s a scam.
So, getting back to the "IF"...
I say pay them whatever they ask for IF:
They get a choice. They can take $250,000-a-year, no questions asked--a figure that still puts them in the elite and, if that isn't enough, trust me, I could put together a list of 1,000 qualified people to run any company for that sum.
OR, to cash that big lavish paycheck, each one has to go in front of a live arena, Roman-style, in the center of the arena, miked up and projected on a big screen television and live-streamed around the planet, and make the case for their pay. If the audience approves, thumbs up, then, lucky CEO, he gets to go home with his job intact.
If the audience gives "thumbs down", he gets fired on the spot (I'd say burned at the stake or torn apart by lions but I'm slightly non-violent). Immediately, the first person on the list of 1,000 qualified people gets the job for $250,000.
Personally, I think a huge number of those 1,000 qualified people would quickly have a new job.