How CEO compensation works

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 of Public Firms Are Wildly Overcompensated for comment on the Elson-Ferrere study by Barry Ritholtz on his The Big Picture web log.

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.

Click on The official Dilbert website with Scott Adams for more from that cartoonist.

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One Response to “How CEO compensation works”

  1. John Larish Says:

    Phil, you might like the following from my book “Out of Focus” the story of Kodak:
    Walter Fallon was appointed CEO in 1973. Gerald Zornow, Kodak’s Chairman who was making $330,000 a year at the time could not conceive how any person could be worth over $1000 a day for any company. Fallon wanted $450,000, so the Kodak Board gave him that and they raised Zornow to $600,000 almost doubling his pay.
    Today, you can’t find a chairman, president or CEO who will work for those wages.

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