CEO compensation continually ratchets upwards because every corporate compensation board thinks its CEO’s pay should be above average, according to a study published in August by Charles M. Elson and Craig K. Ferrere of the Center for Corporate Governance at the University of Delaware.
Corporate compensation boards benchmark their CEO pay against what comparable companies are paying and the benchmarks set CEO pay at or above the industry median. It is like a college class in which every student is guaranteed an above-average grade. Or Garrison Keillor’s Lake Wobegon where every child was above average.
Click on CEOs and the Pay-’Em-Or-Lose-’Em Myth for a report on the study by Gretchen Morgenstern of the New York Times.
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