CEO pay is absurd. Agree completely. It’s the fault of the boards… and the shareholders who elect them. In order to cover their asses from lawsuits, the boards hire compensation consultants, generally at the suggestion of the CEO. The compensation consultant always uses averages for the industry in question and everyone thinks their CEO is above average (like Garrison Keillor’s Lake Woebegone), so CEO pay naturally drifts upwards every year and eventually we arrive at today, where it’s so disconnected from reality that it’s just ridiculous. The same goes for board pay, just in reverse. But, who allows this? The shareholders. Ultimately, it’s the shareholders who pay for all of this crap – well, until recently with the large banks. Now we as taxpayers are involved. But, outside of the TARP banks – which now have pay restrictions – it’s the shareholders of these companies that are getting screwed, not society at large. But it is irritating all the same.
By the way, anyone know how much Bud Selig, MLB Commissioner, makes each year? The number will absolutely flabbergast you.
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The problem is that other CEOs sit on each other’s boards and vote for increases for each other, because it will eventually affect their own compensation.
Also, as to those “shareholders”…oftentimes, the biggest individual shareholders are on the board, and their decisions may not be for the long-term well-being of the company, but rather for their own short-term gain.
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That’s not exactly right. It’s extremely unusual for a board member of a company who is also the CEO of another publicly-traded company to have that company’s CEO sit on the board of their company. Yes, there’s a lot of overlap of boards – don’t get me wrong – but it’s very rare to have the sort of overlapping quid pro quo that you’re suggesting. I think of it more like a club in which lots of folks are scratching each other’s backs, but the direct givers and receivers of back scratches are typically a degree or two apart. That is CEO A is getting his back scratched by board members B and C. CEO A is a board member on D, who is scratching B and C’s backs. It’s not overt.
And when a large shareholder is on the board, I guarantee you they care more about the value of the shares than they do about some measly board fee. (I can speak from experience on this one.) If you’re on the board of a big company and you own a lot of shares – or represent the ownership of a big block of shares – the board fees are a pittance compared to your regular income. This is a red herring.
