Shocking- barring some underhanded dealings here an there, as if the doesn't happen in government jobs and contracts, CEOs get paid what the market can bear. Shocking.

One stat that if often thrown out here is how CEO salary has increased disproportionately with workers salaries over the last 50 years. I find this statistic disingenuous. Has working in a factory assembly line changed all that much over the last 50 years?

Look at McDonalds. Over the last 50 years working there has gotten easier. The cooking is automated and timed. Cleaning the store and managing the store have been the same over 50 years. the jobs have not become more complicated. Now look at the CEO of McDonalds- he or she must manage over a million employees, serves millions of customers daily, opperates in over 100 countries, and manages other brands as well. Has the CEO of McDonalds job changed 300% since 1950?

The CEO does NOTHING. The CEO sits in meetings and has others do everything while they collect the fat paycheck. A chimpanzee would getr the exact same results as any CEO in the nation, given the same staff and employee base.

If that were true, CEOs of failing companies should not be making massive bonuses.

Their pay has absolutely nothing to do with merit. It's quid pro quo; one executive sits on the board of another and they get to decide who makes what.

I can only imagine what a business would do if the manager told them, "I know my sales have gone down 30% for the last two years running...but without me, it would have been 50%!!" If he were a CEO, he'd get a million dollar bonus.

yeah -- the CEO does nothing.

Ask JP Morgan shareholders if Jamie Dimon did a better job that many of his peer banking firms' CEOs over the last five years. He had the judgement to take far less risk than the others, and as a result, his company has held its value.

You think Apple shareholders think Steve Jobs could be replaced by anyone?

GM and Chrysler are wards of the state, yet Alan Mulally at Ford took the steps the other two needed to do a good two years ago.

The fact is, good CEOs are worth every penny paid to them.

And you are, in fact, the reply to Gunsmoke above.

Yes, some CEOs are worth more than others. Frankly, in this market, not too many.

Despite the urgent need for everyone to feel above average, what the market actually teaches us is that most are at or below average -- and should not be paid what you pay Steve Jobs (ahem, do take a look at his compensation).

Just because this absurdity of paying CEOs what they'd like to believe they're worth resulted from banal rather than corrupt motives does not absolve it of moral depravity. The CEO of a failing company doesn't deserve anything more than 100 times the pay of the line employee, and maybe a whole lot less.

Gunsmoke, don't you think the recent past suggests that your blinding faith in "the markets" is a bit off the mark? Or, perhaps, that you've misread what the markets have taught?

The disproportionate increase in CEO pay compared to rank-and-file employees is directly attributed to the use of equity compensation, namely stock options. When the market boomed in the 80s, the curves shifted dramatically. The rationale for using equity...aligning the interests of the executives with the shareholders.

wellnw,

Best, most reasoned response I've read to this article/thread. Thanks for keeping it sane.

The fact is, good CEOs are worth every penny paid to them.

And the bad ones that walk away with tens of millions, or more? How well did "the market" work in those cases?

Yes, Jamie Dimon did a great job. But I just don't think that anyone is worth the $55 million he made in 2008. In one year, he made enough to live rather extravagantly off the interest for the rest of his life. Are we really entertaining the thought that he made better decisions for that amount than he would have made for $40 million or even $10 million?

Executive pay has spiraled out of any sense of proportion or utility. The heads of many other banks who made lousy decisions got paid tens of millions year after year. Seems to me that the correlation between pay and performance just isn't really very good--and that the pay even for good performance far exceeds what one should reasonably pay even for top-notch management.

Remember that "the market" once thought it was appropriate to pay tons of money for tulips too. Doesn't necessarily mean they were worth it. I'm generally a pro-market person, but when we live in a Lake Wobegone world where most people are above average, and that average is used to set pay, then pay will spiral upwards regardless of true ability.

In the same sense that "In sum" 2 + 2 = 147. In other words, not at all.

The market is irrelevant when setting CEO salaries. They are set by boys clubs of mostly other CEO's.

*** Ask JP Morgan shareholders if Jamie Dimon did a better job that many of his peer banking firms' CEOs over the last five years. He had the judgement to take far less risk than the others, and as a result, his company has held its value. ***

And IMG and Citibank are in the crapper. Care to guess how much their CEO's made while driving their companies over a cliff?

Of course there are bad CEOs that should have been fired, but the market would compensate for that if the government didn't bail them out. It is the board's job to make sure the reward structure is in line with performance. No one benefits if the company flames out, but as long as you can claim that you are too big to fail who cares about your performance. The fact is most CEOs don't get paid 50, 60, or 100 million bucks. That only happens at a handful of the thousands of companies that are in business. The average pay is 10 million- if you make your company a billion dollars then 10 million seems approprate. If anyone thinks a CEOs doesn't do anything - maybe they deserve to make 9.50 and hour becuse they are just ignorant. Lets put this into perpective- there are many athletes that get paid over 10million a year for throwing a ball. I think 10 million dollars to run a large comapny is more than justified. Odd isn't it that all these celebrities have been noticably quiet over excess compensation- these are the same celebrities that can't shut their trap for 5 sec over any liberal cause (global warming, gay marriage, eating meat), boy you can hear a pin drop when it comes to excessive compensation though.

Well smoke, I'm sure glad you're not managing anything. Your kids would do well to keep you away from their lemonade stand. For starters, there is nothing disingenuous about the statistic that clearly shows the disproportionate disparity between CEO salaries and the workers. Fact is, real wages (on a national level) have actually been dropping steadily for the last 15-20 years. Actually, working on an assembly line has changed quite a bit based on manufacturing technology advances. But what do an assembly worker’s tasks have to do with the grossly out of whack CEO compensation, other than the fact that the ratio is about 145 to 1 in terms of pay. The rest of the industrialized nations of the world don't even come close to this huge disparity. And they are generally more productive and efficient with their companies. Moreover, the CEO and the board are usually the beneficiary of shady government deals and sweet contracts. They represent the largest holdings of company stock (through option perks) that the average worker will never see either through wages or benefits. Bottom line is, once these guys can get in the club, they have permanent membership no matter how incompetent they are.

What the market will bear, yeh. Well, I wouldn't say the market is bearing up very well at this juncture is it. Thanks to some really inept decisions at the top based on extremely risky investments that were in turn based on greed and stupidity. This is capitalism out of control. Hell, even Alan Greenspan admits that now. Further, your MacDonald example is lame. CEOs do not manage employees, serve millions of customers, or even manage their brands. They delegate those duties to corporate VPs, who delegate to Directors, who delegate to Senior Managers, and so on, until it gets down to the worker bees. The CEO's job is to lead the company with vision and direction at a very strategic level. And the list of very bad ones at doing this is becoming longer and longer. Should I start with the Banking sector? BTW, it has not gotten easier to work at McDonalds. Their product line has vastly increased, along with the complexity of so many new products and combinations. Having an automated french fry cooker doesn't make that job any easier, just ask the kids that work there.

*** Of course there are bad CEOs that should have been fired, but the market would compensate for that if the government didn't bail them out. ***

Except, nitwit, that TIME AND TIME AGAIN it does no such thing. Bailouts have dick to do with it. Do you know how much Carly Fiorina walked away with after nearly destroying one the the U.S.'s premier corporations? What does that have to do with bank bailouts? Nothing. You're just regurgitating the right-wing nutsack talking point of the month.

Of course there are bad CEOs that should have been fired, but the market would compensate for that if the government didn't bail them out. It is the board's job to make sure the reward structure is in line with performance.

Wait a minute: those are two different things. "The market," I thought, was a system of supply and demand which sets prices for goods and services. "The board" is an entirely different creature; it's not a market, nor need it reflect a market (nor, according to studies I've read about, does pay usually reflect performance).

When was the last time a board had yearly auditions for executive positions? In a properly functioning efficient market, you'd have people competing to do a better job for less money. For executive positions, the process seems to be the opposite: there is no competition until the person in the job screws up beyond all recognition (and after having made more in a few years than many make in a lifetime), and the replacement often gets paid more. In most other jobs, people are under pressure from those willing to do the job for less, which keeps costs down.

So how is executive pay a "market" at work? The answer is because there really is no market in this area. As the article points out, pay is set by looking at what other people get paid, not by real competition. If we had real competition, things might look very different. But we don't. Boards never look at someone who is willing to do the same executive job for less; instead, they pay executives what other executives are being paid plus a little more (since most think their executives are above average), and other executives' pay are based on what their colleagues are being paid. So the system is mostly circular and not based on any market foundation of supply and demand.

I think 10 million dollars to run a large comapny is more than justified.

Is anyone really worth over $27,000 per day (and that's assuming a 365 day work year)? (In two days, that person would surpass the national median household income.) If pay is supposed to be tied to performance, will better decisions be made or people work harder for $10 million a year than $8 million a year? When you can make enough in a few years to live off the assets exceptionally comfortably for the rest of your life, where is the incentive to work harder for more money? (I suppose one could be working to fund one's charitable foundation, but then one should ask whether that's the kind of activity that shareholders should be asked to fund.)