Posts Tagged ‘CEO pay’

The minus-$18 billion-dollar man

August 26, 2013
Double click to enlarge

Double click to enlarge

Alex Tabarrok, an economist at George Mason University, pointed out that the market value of Microsoft increased by $18 billion Friday when CEO Steve Ballmer announced his retirement.   Tabarrok made an interesting argument that if the choice of a CEO really changes the value of a company by $18 billion, then it isn’t unreasonable to pay the CEO an eight-figure salary.

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Steve Ballmer

Of course if you valued corporate employees by the damage they could potentially do, many of us would be paid more than we are.   When I was a newspaper reporter, I saved my company millions of dollars by not writing anything that was libelous, but I don’t think that ever was reflected in my paycheck.

One of Ballmer’s bad innovations was “stack ranking,” which meant ranking employees in order of some performance standard and firing the ones at the bottom.  One thing wrong with that is that it gave the employees an incentive to undermine each other rather than working together to make Microsoft a good corporation.  The other is that, as W. Edwards Deming noted, rank order is meaningless.  What counts is whether your performance meets or exceeds the desired standard.

Click on The Value of a CEO for Alex Tabarrok’s post on Marginal Revolution.

Click on How Microsoft lost its way for my earlier post on Microsoft and stack ranking.

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CEO pay and stockholder return: the disconnect

May 24, 2013

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I leave it to statisticians to tell me whether there is a relationship between the profitability of companies and CEO pay.  I just note that the CEO on this chart whose company was the most profitable, Jeff A. Stevens of Western Refining, got one of the smallest compensation packages, and the CEO with the biggest compensation package, Larry Ellison of Oracle, headed a company that lost money.

It is true, of course, that executive pay is related to the size of the company and other factors besides annual return on equity, so there may be other rankings in which these figures seem to make sense.  I’d be interested to know them.

Hat tip to occasional links and commentary.

CEO pay vs. minimum wage pay

February 20, 2013

minimumwageIt’s a funny thing.  I never hear anybody argue that increasing CEO pay will lead to fewer jobs for CEOs, or that increases in CEO pay will cut unacceptably into profits, or that the cost of CEO pay will be passed on to consumers.

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Defense industry CEO: nice work if you can get it

September 3, 2012

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This infographic from the Project on Governmental Oversight, a watchdog organization, shows that the CEOs of the top five Pentagon contractors—Lockheed Martin, Boeing, General Dynamics, Northrup Grumman and Raytheon—received average compensation equal to 268 of their employees or 335 American active-duty enlisted personnel.

The Department of Defense does cap payments for contractor executive salaries at $750,000.  Anything the CEOs get over and above that comes out of profits, or out of work these companies do for other customers, not the U.S. taxpayer—at least, not directly.  But considering problems with cost overruns with major military contractors, I still have to wonder about the justification for such large compensation practices.

Click on Pentagon CEO Compensation Is Second to None for the complete POGO report, which is the source of the infographic.

Click on Lockheed Martin for a profile of the company and its scandals by Crocodyl, a corporate watchdog organization.

Click on Boeing for Crocodyl’s profile.

Click on General Dynamics for  Crocodyl’s profile.

Click on Northrup Grumman for Crocodyl’s profile.

Click on Raytheon for Crocodyl’s profile.

Hat tip for the infographic to Bill Elwell.

Can we outsource CEOs to India?

August 10, 2011

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I agree with the sentiments of the cartoonist.  However, in point of fact, corporate executives in India don’t work for peanuts, either.  CEO pay in India has doubled in the past five years and is rising at the rate of 15 to 20 percent a year.  I don’t know, but I wonder if the economic contribution of CEOs in India twice as great as it was five years ago.

Click on Executive Salaries in India and the West Will Be Equal By 2013 for information on CEO pay in India.

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The CEO, the Tea Partier and the union guy

March 1, 2011

Here’s a joke that’s making the rounds of the Internet.

A CEO, a Tea Partier and a union organizer sit down at a table, on which there is a dish of 12 cookies.

The CEO takes 11 of the cookies and says to the Tea Partier, “That union guy wants part of your cookie.”

Graef Crystal and the question of CEO pay

September 22, 2010

When I reported on business for the Democrat and Chronicle here in Rochester, N.Y., one of my favorite news sources was Graef Crystal.  He was one of the architects of the system of corporate compensation we have today – not just a salary, but the maze of incentive bonuses, stock options, pension benefits and other complexities that make it so difficult for the lay person to figure out what corporate executives actually get.

At some point Crystal stepped back from what he and his colleagues had done with a sort of “what have I done?” reaction – something like some of the scientists who worked on the Manhattan Project.  When I had contact with him, he had started a new career as a researcher, lecturer and writer on the abuses of corporate executive compensation.

Graef Crystal

What he concluded from his research is that there was no relation – not even a negative relation – between what CEOs and other corporate executives got, and the performance of their companies.  Some high-performing companies had high-paid CEOS and some had (relatively) low-paid CEOs; some low-performing companies had (relatively) low-paid CEOs and some had high-paid CEOs.  It was all random, he said.

As a reporter, I liked Crystal because he always gave me a pithy quote.  He once did a study comparing the compensation of British and American CEOs who headed comparable companies and delivered comparable results.  “You would always want to hire the Brits,” he said.  “They deliver the same results for less money.  And besides, they speak better English.”

In that era Eastman Kodak Co.’s board of directors in the 1990s replaced Kay R. Whitmore, the last of the CEOs to be promoted from within, with George Fisher, who was hired away from Motorola.  At the end of Fisher’s tenure, Crystal noted that in terms of return on investment to stockholders, Kodak actually performed better under Whitmore than under Fisher.  “You paid a Cadillac price for a Chevrolet,” he said, “and the Chevrolet turned out to be a lemon.”

Fisher, in addition to his multi-million-dollar salary, was given an “incentive bonus.”  In his first year, he received a “guaranteed incentive bonus.”  I asked a corporation compensation expert (not Crystal, I forget who it was) why somebody at that level needed an “incentive bonus.”  It seemed to me that most corporate executives had a good work ethic and didn’t – and shouldn’t – need to be bribed to do a good job.

The expert said the purpose of the incentive bonus was to remind the CEO of his priorities – which is not to create jobs, not to serve the community, but to deliver the maximum possible return to stockholders.

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