CEO Pay / by kevin murray

First off, private corporations are not the same as publicly-owned companies which are traded on the stock exchange.  While there isn't any doubt that I have something also to say about private corporations and their compensation structure, I will leave that for another time and just concentrate on the elephant in the boardroom of our publicly held corporations.  Corporate executive pay and compensation packages are too high, have been too high for an unseemly extended period of time, and don't seem to be on any path except the insanely steep arc that they are currently on.


For those that believe that that is just the way it is and therefore just to deal with it, I must beg to differ.  These are corporations that are publicly traded, usually of massive size, and consequently must be held to a higher standard that is in turn consistent with American values and historical precedent.  CEO pay is a sick sideshow that is wholly antithetical to America, which encourages and encompasses quid pro quo approvals by lackey Board of Directors who seem to serve no other purpose than to sell the illusion that they have a real interest in prudent corporate governance.  While there are exceptions to all of the above, there are far more that follow this present formula down to the 'T'.


The biggest boosts to CEO salaries are cash bonuses, stock options, and restricted stock issues, not to mention lucrative compensation packages that include second homes, country club memberships, private air travel, exclusive vacation packages, limousines, executive office perks with benefits, tax consultants, and just about anything that you could possibly imagine of which very little has to do with the actual requirements that the job entails.  While it is argued, that corporate packages have to be competitive in order to attract and maintain talent, that is in itself a slippery slope and doesn't on its own justify the top-heavy compensation packages that benefit an elite few while under compensating others and short-changing stockholders as a whole.


The most egregious forms of overcompensation are stock options and restricted stock, while there has been out-and-out fraud with backdating of options, and falsely augmented earnings, I want to just concentrate on the options themselves.  Greed is an incredibly motivating force and when corporate executives know what their stock option exercise price is, many of them will essentially do whatever it takes to goose their stock to affect that higher stock price.  Buybacks of stock by the company are ostensibly justified as good value, but often the real reason is to reduce the amount of shares outstanding so as to boost earnings and thereby the stock price.  Additionally, a study by P. Raghavendra Rau, Michael J. Cooper, andHuseyin Gulen as reported by found to their surprise: "…that those that were most generous with stock-based incentives saw stock-market returns lag those of similar-sized companies in the same industries, by about 8% over three years."


Recently, restricted stock compensation has become more prevalent in more corporations.  Basically, restricted stock is common stock in which the CEO will become vested and thereby can "earn" those shares over an agreed upon period of time.  CEOs like this form of compensation because unlike options they don't need to worry as to whether their shares will be "in the money" as their restricted stock is pretty much a sure thing for their overall compensation package, subject only to the vicissitudes of the market and their continued employment.


According to, "Three decades ago, in 1982, American CEOs averaged 42 times more than average U.S. workers. Two decades ago, in 1992, the gap stood at 201 times. A decade ago: 281 times. The latest ratio: the 354 times." CEO pay increases can possibly be curtailed or stymied by an active and concerned mutual fund industry, common stockholders united in purpose, media that continues to expose this inherent inequality, and a Board of Directors that takes its stewardship of its corporate responsibilities seriously with true fiduciary duty.