CEO Pay Scam

Reports on the exorbitant pay provided to Corporate Executive Officers in American companies, regardless of whether they have been effective at increasing profits.

The median compensation for CEO's in all industries as of early 2010 is $3.9 million; it's $10.6 million for the companies listed in Standard and Poor's 500, and $19.8 million for the companies listed in the Dow-Jones Industrial Average. Since the median worker's pay is about $36,000, then you can quickly calculate that CEOs in general make 100 times as much as the workers, that CEO's of S&P 500 firms make almost 300 times as much, and that CEOs at the Dow-Jones companies make 550 times as much.

If you wonder how such a large gap could develop, the proximate, or most immediate, factor involves the way in which CEOs now are able to rig things so that the board of directors, which they help select -- and which includes some fellow CEOs on whose boards they sit -- gives them the pay they want. The trick is in hiring outside experts, called "compensation consultants," who give the process a thin veneer of economic respectability.

The process has been explained in detail by a retired CEO of DuPont, Edgar S. Woolard, Jr., who is now chair of the New York Stock Exchange's executive compensation committee. His experience suggests that he knows whereof he speaks, and he speaks because he's concerned that corporate leaders are losing respect in the public mind. He says that the business page chatter about CEO salaries being set by the competition for their services in the executive labor market is "bull." As to the claim that CEOs deserve ever higher salaries because they "create wealth," he describes that rationale as a "joke," says the New York Times (Morgenson, 2005, Section 3, p. 1).

Here's how it works, according to Woolard: The compensation committee [of the board of directors] talks to an outside consultant who has surveys you could drive a truck through and pay anything you want to pay, to be perfectly honest. The outside consultant talks to the human resources vice president, who talks to the CEO. The CEO says what he'd like to receive. It gets to the human resources person who tells the outside consultant. And it pretty well works out that the CEO gets what he's implied he thinks he deserves, so he will be respected by his peers. (Morgenson, 2005.)

Originally broadcast on the ABC television program 20/20 on April 19, 2002.

Category:

Nonprofits & Activism

Tags:

• ceo
• salary
• golden
• parachute
• corporate
• rip-off
• social
• justice
• economy
• corruption

[newguy33X]

It sounds like it takes all of Walters' energy to speak a sentence...and then her acting/emphasis sucks. They all speak like they're talking to idiots...Stossel does it all the time.

[candoyja]

We should crack down on the compensation committee idiots. That will solve some part of the problem.

[bertly71]

@GammaSigmaBeta I want a job like that.

[GammaSigmaBeta]

@bertly71

Indeed. They get paid whether they perform or not...........

[bertly71]

Pay for performance does not apply to all of us. There are different rules for business leaders.