October 6, 2009 at 2:01 am
Hold on, let me pull out my violin to play some sympathetic consoling music for our nation’s Chief Executive Officers (CEOs). According to a Corporate Library survey of 2,700 publicly traded companies, CEO compensation declined -0.8% in 2008. I guess that 4th Ferrari and 3rd yacht will have to be put on hold. With some creative perseverance and a little elbow grease, I’m sure the class of underprivileged CEOs can still salvage a healthy package of stock options and restricted stock (to pad the paltry multi-million dollar salaries).
This is what Payscale.com had to say in a report from 2008:
“In 1970, CEO salary and bonus packages were typically about $700,000 – 25 times the average production worker salary; by 2000, CEO salaries had jumped to almost $2.2 million on average, 90 times the average salary of a worker, according to a 2004 study on CEO pay by Kevin J. Murphy and Jan Zabojnik. Toss in stock options and other benefits, and the salary of a CEO is nearly 500 times the average worker salary, the study says.”
Of course, Congress and the public are looking for scapegoats to blame for the global financial crisis. There is no better group to blame than highly compensated CEOs. As a result, we are seeing more “say on pay” proposals brought to shareholder votes, thereby removing power from the hands of self-appointed compensation committees and chummy board members. Currently, a Shareholder Bill of Rights Act is making its rounds through Congress that would establish an annual shareholder vote to approve executive compensation of executive management along with have a separate vote on “golden parachute” payments in the context of a company merger or acquisition.
The U.S. is not the only country to implement these types of shareholder rights. As David Ellis at CNN Money wrote, “In 2002, the United Kingdom embraced the practice, and it has subsequently been taken up in Australia and Sweden.” In the U.S. such proposals being considered are on a “non-binding” basis, which means that if “say on pay” is approved there will be no obligation for management to implement the changes – rather “shame” will be the strategic lever used by shareholders.
Everyone has been impacted in one shape or form by the financial crisis, so when you tuck-in your child or lay your head on the pillow tonight, rest assured our poor corporate CEOs are sharing in the pain…just remember, they only kept 99.2% of their pay last year.
Read More About Corporate Library Survey
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
Entry filed under: Politics, Themes - Trends. Tags: bonus, CEO, compensation, Congress, executive, options, restricted stock, say on pay.
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Randy Johnson | December 18, 2009 at 6:49 pm
Well, “shame” can work but not far enough to fix. I don’t see any one of these guys feeling the slightest bit guilty about thier compensation either. This generation is not into guilt.
These guys grew up in the ’60s. like Ridley talked about this morning and the whole generation thinks that they are “special” and are “entitled” and that the RULES don’t apply to them.
They all sit on each others Compensation Committees and they hire the same compensation consultants. Can you imgine the career prospects of a consultant who told them that they were adequately compensated, much less that they were over paid?
Might as well try to contradict Hitler
BTW, I outlined this same topic back in 1992 when it wasn’t anywhere nearly as bad as it is now.
As an MBA, I am ashamed of what these guys are doing. They have forgotten that they have a JOB. It’s not a Principality, or a Duchy or an Earldom , it’s a JOB.
sidoxia | December 18, 2009 at 7:09 pm
I agree and hear you. These incestuous compensation committees full of back scratchers have no accountability. Apathetic shareholders, who rent stocks on a daily basis, didn’t care when equity prices went straight up in the 80s and 90s. Now that markets have been flat to down for the last decade, I’m hopeful that investors will take a more critical eye in these growth starved period. Time will tell if the “say on pay” backlash materializes on not? In the meantime, I will do my best as midget investor by voting my proxies in a discerning manner and shorting the stocks of underperforming companies with greedy executives. If that doesn’t work, then hopefully my poker game at the Hawaiian Gardens improves!
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