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Investigate CEO Pay? Investigate Others, Too!
If politicians worry that CEOs make too much, they should also investigate movie stars and Al Gore — not to mention senators who campaign for higher office while feeding at the public trough.
Certain members of Congress — some of them presidential candidates — think it’s a great idea to investigate how much CEOs of major corporations earn. This is an effort to make Americans think they’re doing something — not to mention an effort to keep class envy alive. Barack Obama is pushing legislation that would allow investors to approve a CEO’s pay based on their satisfaction of stock performance, while John McCain wants to “shine a light” on CEO pay packages.
When Congress decides to get involved in the private sector, be prepared for unexpected consequences. They mean well, of course, but invariably something goes wrong. Guess who ends up paying for the mistake? Hint: not Congress.
Envy and jealousy, those two ever-present human emotions, are at play, and “greedy” corporate fat cats are once again in the spotlight. But when it comes down to it, how many average Americans know what CEO pay is based on? We all imagine the CEO living in his posh mansion and being driven in his limo to his office where he spends maybe a couple of hours a day “working.” Then it’s off to the golf course or the yacht club, where he socializes with his peers, waited on hand and foot by the hoi polloi who bow and scrape for paltry tips.
Do those of us who envy from afar realize how much these people go through to get to the top of the pay scale?
One of my brothers-in-law is not a CEO, but he’s darn close — he’s a CIO for a major American corporation. But he didn’t start out that way. He had an average job as an electrical engineer, making decent money but not scads of it. In a way, he was “discovered,” being in the right place at the right time with the right skills — and he was on the track to corporate stardom. In the process he had to earn two master’s degrees (including his MBA) at night while working days; moved his family across the country four times; and at his last job ended up traveling 80 percent of the time all over the world and not always to nice locations — in some places he actually needed armed body guards. Fun, huh? He travels with his current job too, but only about 20 percent of the time and only in North America — one of the reasons he accepted their offer.
When you get to this level, you often work late and always have to be available via Blackberry, cell phone, and computer at home in case a crisis crops up. Your time is never your own unless you are on official vacation. You have to make big decisions that affect the entire corporation — and if they’re the wrong ones, it’s your head on the block. You are paid handsomely, yes, but your home life suffers. Believe me; he earns every penny of his salary. And he’s a nice guy to boot who enjoys fishing and hunting, and he’s a lifetime member of the NRA. (By the way, he drives himself to work in his own car. He only gets a limo when he goes to the airport.)
But in case my brother-in-law’s story isn’t enough to convince you, let’s look to someone with a little more clout than I have: Thomas Sowell, one of this nation’s most respected economists, who explains why anyone would want to pay a CEO such exorbitant amounts of money:
One popular explanation is that executive salaries are set by boards of directors who are spending the stockholders’ money and do not care that they are overpaying a CEO, who may be the one responsible for putting them on the board of directors in the first place.
It makes a neat picture and may even be true in some cases. What deals a body blow to this theory, however, is that CEO compensation is even higher in corporations owned by a few giant investment firms, as distinguished from corporations owned by thousands of individual stockholders.
In other words, it is precisely where people are spending their own money and have financial expertise that they bid highest for CEOs. It is precisely where people most fully understand the difference that the right CEO can make in a corporation’s profitability that they are willing to bid what it takes to get the executive they want.
If people who are capable of being outstanding executives were a dime a dozen, nobody would pay eleven cents a dozen for them.
When CEOs don’t make the grade, they’re dropped like hot rocks. Yes, many of them receive “golden parachutes.” But it’s likely that those parachutes are packed when the CEO signs on, not in a mad rush to get him out the door.
More from Sowell:
Given the high degree of specialization in a modern economy, demanding that everything “justify itself before the bar of reason” means demanding that people who know what they are doing must be subject to the veto of people who don’t have a clue about the decisions that they are second-guessing.
It means demanding that ignorance override knowledge.
The ignorant are not just some separate group of people. As Will Rogers said, everybody is ignorant, but just about different things.
Should computer experts tell brain surgeons how to do their job? Or horse trainers tell either of them what to do?
One of the reasons why central planning sounds so good, but has failed so badly that even socialist and communist governments finally abandoned the idea by the end of the 20th century, is that nobody knows enough to second guess everybody else.
This is why I believe Economics 101 should be a required class in either high school or college. Even so, unfortunately, this kind of logic is usually thrown overboard when people are concerned about the economy and their own pathetic standing in it. Personal responsibility to manage your own finances in a sensible manner will always take a back seat to being part of a mob with pitchforks and torches, looking for the nearest scapegoat.
This being an election year, don’t expect Congress and presidential candidates to listen to people like Thomas Sowell, who know what they’re talking about. They must do something to look as though they’re appeasing the masses. More bread and circuses! And so, in that light, I’d like to suggest a few other areas of salary inequity they may want to look into. No, it’s none of their business how much these people make, but neither is CEO pay. And it would make some really good press.
- Movie stars, singers, sports stars, and other entertainment celebrities. Think about it: every time you go to a movie, concert, or sports event, the people entertaining you are making millions of dollars, which often translates into higher prices for you at the box office or music store. And, as is often the case — with movies, anyway — you don’t always feel as though you’ve gotten your money’s worth. Why should you shell out more for increasingly mediocre talent? It’s an outrage! Additionally, think about all of the starving actors and performers out there who don’t make as much as “big stars” like George Clooney, Madonna, and Tom Cruise. It’s just not fair that they’re making the big bucks and living lives of luxury while the unknowns are waiting tables in between auditions just to make ends meet. Talent, luck, and supply and demand? Fugheddaboutit! If we’re going to level the playing field for everyone else, let’s not leave pampered celebrities out of the loop. And don’t forget the heads of the entertainment companies.
- CEOs who head “politically correct” companies. Why isn’t Congress looking into how much the CEO of Starbucks is making? Because Starbucks is a company beloved by its patrons for giving them that Friends feeling when they buy an overpriced coffee masquerading as something else and sit down in comfy chairs to peruse the New York Times or surf the free WiFi. And Starbucks is at least ostensibly committed to the right causes, like fair trade. Forget the fact that the CEO probably makes more in a month than an average “barista” — that’s a sophisticated name for a coffee server — will during his entire career with Starbucks, right? But if we’re going to look into CEO pay, then Starbucks and all the other companies that make us “feel good” when consuming their products should be fair game too.
- Al Gore. It’s amazing that Al Gore has managed to parlay his concern for the environment into a vast personal fortune. In fact, his fortune allows him to comfortably heat his massive home and zigzag across the globe on private jets, all while telling the rest of us to turn down the thermostat and bicycle 20 miles to work in an effort to reduce our so-called “carbon footprints.” It’d be interesting for Congress to learn just how his “carbon offset” scheme works, especially seeing as how he buys the offsets from a company for which he just happens to not only serve as chairman, but also partly owns. When it comes to Mother Earth, shouldn’t we all be making economic sacrifices?
- Finally, Congress should take a look at the salaries of officeholders who run for higher office. Nothing gets my goat more than public officeholders who spend more time campaigning for a better position than doing what they were originally elected for. Wanna be president? Fine. But you should be made to either wait until your current Senate or House term expires or be forced to resign your post. Why should the taxpayers foot the bill for these yahoos who, rather than doing the work of the American people, are looking for more prestige and power for themselves? One of my senators was among the not-so-lucky contenders for the presidential nomination. He missed nearly 40 percent of the votes that occurred during his time on the campaign trail — and when he threw in the towel, headed back to his nice office in Washington and (I’m sure) will run for Senate again when his term is up. How many of you have bosses who would pay you to skip work to look for a better position elsewhere?
It’s nice to dream, isn’t it?
Pam Meister is the editor of FamilySecurityMatters.org (the opinions she expresses here are her own), and her work has also been featured on American Thinker.
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43 Comments
1. OsoGrizzly:Let’s add Ambulance Chasers, excuse me I meant to say lawyers to the list. John Edwards particularly gets under my skin with all his 2 America’s BS. But don’t stop at John Edwards, continue with all the jacka$$es that advertise to “take on the big drug companies” with class action suits. IMHO these, very, very wealth jerks are one of the principal reasons health care is so expensive.
Apr 20, 2008 - 6:20 am 2. Saltherring:Many in Congress (e.g., Ted Kennedy) are beneficiaries of “old money” trust funds. His father, Joe Kennedy, made much of his money from illegal “bootlegging” enterprises during prohibition, laundering this dirty money into legitimate business enterprises through front corporations. I also understand much of Kennedy’s money is held in “offshore” tax havens, allowing Teddie to draw non-taxable pocket money. One of Teddie’s nephews (I forget which one) once boasted, during a drunken campaign speech, that he’d “never worked a f***ing day in his life”. One could argue that neither has Ted, so let the invesigation begin with him….and continue with the remainder of Congress, who live high on the hog on “influence peddling” dollars, disguised as campaign contributions.
Apr 20, 2008 - 7:17 am 3. BackwardsBoy:Remember the Circuit City CEO who made $8M in one year only to fire the employees who made $12 an hour and rehired them around $8? Don’t get me wrong, I’m all for making as much money as you can, but that kind of business acumen certainly stokes the fire of class envy.
Apr 20, 2008 - 9:21 am 4. Nicolo M.:Well, sort of. But the truth is CEOs of failing comapnies do make an obscene amount of money. And,in defense of McCain, he voted against his own recent pay raise, which, since he was on the losing side of the vote, he then gave the difference to charity. Also, I’m not fan of Obama’s but it’s certainly aguable that investors are entitled to say in CEO pay. It’s their money after all. Meister veers toward paleo-conservative diatribe.
Apr 20, 2008 - 9:34 am 5. Jvette:I just finished reading a magazine story of a young man whose family came here from Afghanistan because of the Taliban. He and his family are so grateful to be here and he looks forward to attending college and becoming a doctor. The story ended with him saying, “As hard as one is willing to work, that is how much one can succeed in America.”
Too many people envy successful people without a thought to the work that went into achieving that success. The real American dream is that opportunity to succeed available to anyone willing to work for it.
Apr 20, 2008 - 10:02 am 6. GM Roper:An interesting take by some of the commenters. Lets take it to the (ill)logical extreme. How about all sanitary workers make about $100,000.00 year and congress sets CEO pay at $1.00 per year. Who wants to be a CEO now.
Better yet, lets set the minimum wage at $1,000.00 per hour and restrict CEO’s pay to twice that but pay them for every hour actually spent working (say 120 hrs/week), what do you want to bet that if we did that, Someone would still stoke the fires of envy and demand CEO salaries be looked at closely.
Don’t fall for it people! Its private business and it’s not the public’s concern.
Apr 20, 2008 - 10:04 am 7. Tom Horne:The business of America is Business. Good wages from Business has elevated the USA to a solidly middle class country in the last 100 years. We have now developed a problem, since the ‘80s that threatens capitalism by reducing citizens faith in the system. The vast run up in relative CEO pay. The very men we should look to for leadership in our society, the heads of our largest businesses, have in large measure disqualified themselves for that national leadership by abusing their positions at the head of our major publicly traded corporations by taking too much for themselves. When a CEO parachutes into a company, at pay a hundred or more times the median pay of the companies employees, then leaves with a golden parachute 5 years later, regardless of performance, which is so common as to be the norm, something is wrong. There is no shortage of CEO talent available in this country of millions of MBAs. Our system of corporate governance has been corrupted. One problem is incest:7-11-03 Forbes article listing CEO’s that serve on many boards, it points out at least one interlocking incestuous relationship that is a good example of the circular nature of the CEO compensation game. This is a pertinent quote from that article: “Verizon Vice Chairman and
Apr 20, 2008 - 11:28 am 8. jeff:President Lawrence Babbio serves as a director of Aramark and, until leaving
the compensation committee in February of this year, determined the salary
and benefits for its chairman and chief executive, Joseph Neubauer.
Neubauer in turn, serves as a director of Verizon, and up until this year when
he vacated ts Human Resources committee, determined Babbio’s salary.”
The very next paragraph describes a similar link between Verizon and
Wyeth, a large pharmaceutical company. We have a problem here that treatens capitolism, abuse by those that can.
–Its private business and it’s not the public’s concern.
When corporate boards are filled with with CEO’s who all “scratch each others backs” and grant each other huge salaries it’s incestuous. If their pay was truly market driven it would be fine by me whatever they make but it’s not. Small stockholders are being ripped off and really have no way of correcting the situation other than just sitting out of the market. Publicly traded business are not private and they have responsibilities to their shareholders. Business should clean it’s own house or they’ll have another Sarbanes Oxley to contend with.
Apr 20, 2008 - 12:08 pm 9. GM Roper:–”Publicly traded business are not private and they have responsibilities to their shareholders.”
And it is the SHAREHOLDERS responsibility to rein in the salaries. Not Congresses!
Apr 20, 2008 - 1:33 pm 10. Doesn't Matter:My statement stands.
Continueing the list of people who’s income should be scrutinized further:
Politicians who write books: Why should we pay them to write a book and them make millions off of the advance.
Professors who make money outside the classroom: Why should public schools pay a guy to do research and then allow that professor to make money off of that research by writing books, getting speaking fees, and running outside businesses. We wouldn’t let anyone in corporate America do that.
Any ex-politician who uses the knowledge and experience gained in office to earn money after leaving office. If I helped develop a product for a company, the company would own the rights to the intellectual property. I would not be able to use that intellectual property elsewhere even if I did leave the company. I may be able to do the same job elsewhere, but I would have to be careful about doing anything that copied the product. Yet, we allow ex-politicians to make money by writing books about their time in office. It would be like an IBM executive writing a book about how IBM writes software.
Apr 20, 2008 - 1:48 pm 11. Tom Horne:Hello GM Roper, Ownership of publicly traded corporations is so difuse that individual shareholders have effecitvely no voice. Institutional shareholders have some voice voting vast numbers of shares, if anyone is paying attention to anything other than short term bottom line performance. In either case, in many if not most cases, shareholder votes are not binding on the boards. In some cases, the boards and CEO have sufficient shares, granted to themselves, or purchased with favorable loans from the corporation, to fight all but the biggest institutional investors. The system has become corrupt. It will be changed, by self policing or by law, it is up to these business “leaders”. I am afraid that they will abuse our Golden Goose rather than husband it, trying to get a few more golden eggs for themselves.
Apr 20, 2008 - 2:18 pm 12. Sera:Regarding Doesn’t Matter:
Often times those professors who develop and make money off of whatever “invention” they made while at a university are boxed in by a lot of different rules. Depending upon the level of support from the University and government (% of support – 75& NHS and 24% school) and their status within the University, many prof’s actually lose money on their “inventions”. Beyond that, if a professor is hired by an outside entity, they are entitled to whatever compensation they are offered. However, there are strict guidelines and rules about how much and where the money came from. (Problems with conflict of interest, etc.).
A lot of the time, the money from ideas is shared by the inventor and the school/institution where it was done. I think this is fair.
Apr 20, 2008 - 4:19 pm 13. J:Let me second OsoG – don’t forget to evaluate lawyer pay.
I think it’s the golden parachute business that really angers people. I don’t care how much the CEO gets paid in a company that is successful; it’s the guys who destroy a company, who would have been overpaid at minimum wage but still walk away with millions that bother me. In a related vein:
“In the process he had to earn two master’s degrees (including his MBA)”
Is there any evidence whatsoever that a graduate degree of any kind makes a CEO better at his/her job? MBAs and such are great for those holding them, but there’s at least some evidence it’s a different story for the stockholders: http://www.forbes.com/2002/04/25/0425ceoschools.html
Apr 20, 2008 - 4:28 pm 14. M. Simon:Tom H,
If share holders think that they are not getting value for their money I think they should do something about it – sell their stock.
Buy stock in companies that perform better with lower cost chief executives.
So yes – shareholders do have a vote. It is called buying and selling.
Apr 20, 2008 - 5:00 pm 15. redherkey:CEO compensation is a natural consequence of power-law distributions, and efforts to tamper it down unnaturally will have numerous unintended, negative consequences. The reality is, like leading professional sports players and Hollywood entertainers, when there are only 250 firms in the Fortune 250 and those firms will see multi-billion dollar variances between great leadership and poor, what’s an extra $25 million risk premium in the big picture?
The same goes for Hollywood actors. Why pay George Clooney $5 million for a film and put the whole return at risk when you can pay Will Smith $10 million and guarantee a great box office?
Having moved up the past year to working with C-title people in a Fortune 250, I too realized how much they earn their keep. The pay is more of a competitive dynamic, attracting the most capable people to the larger firms. But the market is very limited on how many people can tolerate the demands. The risk taking is significant – decisions made on very limited information under significant stress and little time. The consequence is absolute: you’re out of a job. Senior VPs and above in our firm rarely last more than two years.
If Congress wants to focus on unethical compensation activities, then start with cleaning their own house. Investigate and terminate Senators and Representatives that are actively seeking other offices and neglecting their duties. An attendance policy should be instituted for Congressmen just as the rest of us face in our jobs. Books written by them should also fall under the same inventions and work-for-hire rules the rest of us face, with the ownership of those books being the citizens through their government.
Apr 20, 2008 - 5:14 pm 16. jdkchem:“Professors who make money outside the classroom: Why should public schools pay a guy to do research and then allow that professor to make money off of that research by writing books, getting speaking fees, and running outside businesses. We wouldn’t let anyone in corporate America do that.”
Universities hire certain professors specifically because of their work in research. All of the money they bring in through grants does not go into the professors pockets. Also, in most cases, any work research that becomes a profitable commodity the university retains rights to, see Florida State University and Taxol. And, those “outside” businesses were most like “spun-off” from the university. Take just about any major university and compare what the science and engineering departments bring in in grant money and compare that to what the athletic department brings in.
Apr 20, 2008 - 6:03 pm 17. Brian C:Michael Ovitz did a terrible job as the CEO of Disney. Yet, upon firing, he took $80 million dollars severance. Did he deserve it?
The problem with the excessive CEO compensation is that it creates a logical conundrum when faced with cost-cutting: why fire workers when just lowering the CEO’s millions might do as much good for the bottom line? (I speak of perqs, corporate jet, club memberships, etc.)
Apr 20, 2008 - 6:12 pm 18. mark goodman:Conservatives love to bring up movie stars, ballplayers, etc, who earn what the traffic will bear. If owneers/producers don’t want to pay them, they don’t have to. They are, essentially, highly paid employees who generate enormous sums of revenue. In the case of CEOs, they arroagte vast sums of corporate profits to themselves at the expense of employees. In 1977 the ratio of average CEO pay to that of the average employee was 36-1 — fairly reasonable. Now it’s 364-1 and the gap between the rich and poor is the widest it’s been since the 20s. The average employee earns just under $30,000 per year while the average CEO earns by his decree an average of $11 million/annum. I’m a professional writer who has watched with mounting melancholy as the rich plunder this country for their own personal gain while leaving working families holding down 2-3 jobs just to try to keep their heads at water level. Quite frankly, Ms. Miester, smug, pity-the-gnomes-of-Zurich snits such as you make me despair for this country — and, more frankly, to vomit.
Apr 20, 2008 - 6:33 pm 19. Mike:> Ownership of publicly traded corporations is so difuse that individual shareholders have effecitvely no voice
Shareholder lawsuits. That is the voice of the minority shareholder. Should there be a concern that these lawsuits lack teeth:
http://www.iht.com/articles/2007/07/08/sports/bxbp.php
And the shareholders – as a whole – should be able to pay their management what they want. It’s their company.
The state (US state but also US federal government) already has the ultimate power over any company anyway – they can yank its charter. It’s never done anymore but it could be done again.
Apr 20, 2008 - 6:48 pm 20. Herb:Pam,
I was sad to see your post devolve into a polemic. I had such high hopes, but then I read this sentence: “This is why I believe Economics 101 should be a required class in either high school or college.” I read that sentence, not as support of expanding economics curricula, but instead as a way to paint economic disagreement as economic ignorance.
After all, if it was required (and I supect most schools do have some requirement), would that disagreement suddenly evaporate and everyone would become true free-market disciples of Adam Smith?
No.
As for your hard-working, sacrificing brother-in-law who earns every penny…I can say the same about my father, about his father, about my mother, about everyone in my family and many of my friends. None of them ever made a million bucks or negotiated a golden parachute package. Maybe they’re just unlucky? Not as smart? Didn’t work as hard? Please…generalize some more.
As for your laughable list of other entities to investigate…..your inclusion of Al Gore as a separate category proves with some conclusiveness that you have no interest in discussing this subject seriously, and instead will settle for weak gibes against political opponents. High paid celebrity entertainers? CEOs of “politically correct” companies? Officeholders running for higher office? Al Gore qualifies for all 3? And yet you give him his own category…
It’s redundant, which is just dumb, but what makes it two times as annoying is that it’s a shamelessly partisan and wholly unnecessary redundancy.
Your sarcasm is clever though. Persuasiveness? Not so much.
Apr 20, 2008 - 7:07 pm 21. steve:“There is no shortage of CEO talent available in this country of millions of MBAs.”
Tom, don’t you think it’s a little naive to assume that just because someone gets an MBA, they’d become a talented CEO?
Apr 20, 2008 - 9:32 pm 22. a professor:Re: “Professors who make money outside the classroom: Why should public schools pay a guy to do research and then allow that professor to make money off of that research by writing books, getting speaking fees, and running outside businesses. We wouldn’t let anyone in corporate America do that.”
Actually, the commentor has a point. Prior folks bring up activites more in line with discoveries than writing textbooks and garnering speaking fees.
In my field, the true researchers (working on the school’s dime) disparage those who are “textbook writers” and are contributing more to their own wealth than to the university’s. First, we knock down their salaries as low as we can, and don’t give them merit raises (as they merit none). Researchers are generally paid a lot more than textbook-writers because we contribute a lot more to the school’s mission. Second, we give them crappy teaching loads to try to discourage their behaviour. For example, we won’t let them stack all their classes in one term (like the researchers are allowed to do); give them multiple class perperations, etc. They’re also given a lot more service in general. All this because others at the universities realize they’re just trying to line their own pockets. Oh, and if we see any of this textbook-writing behaviour prior to tenure, we make sure they don’t get tenure.
Apr 21, 2008 - 6:03 am 23. steve434:Mark Goodman – huh? Actors earn their large salaries, but CEO “arroagte (sic) vast sums of profit”? You’re infected class warfare and wealth envy. A professional writer? Hmmm. Why should Kobe make millions a season when the people working at the arena selling hot dogs make minimum wage. That’s not fair, is it? Why should Opra pay herself hundreds of millions each year? Her workers don’t make that much? Is it only conservative types that you are going after?
No one is forced to work for a particular company or in a particular field. If a person believes they are under-paid, then take your job skills into the market and do better. CEOs get to their position through various channels and their bosses (the board) don’t want to pay them, they don’t have to. They are, essentially, highly paid employees who generate enormous sums of revenue.
Apr 21, 2008 - 6:13 am 24. stealthpundit:Many of the most egrigious cases of CEO over-payment are trumpeted as examples of why CEO pay needs to be controlled (by the government). Though while they do skew the numbers remember that there are a LOT of CEOs in the country – its not just the Fortune 100 or 500. Most of these are hard working and make a good salary but not a fortune. Instead they are tied into the worth of the company – whether it is privately or publicly held – through stock ownership. If the company does well then they do well.
On the other hand I do find some of the severance packages unconscionable. If a company is willing to pay a (failed) CEO $10 or $20 million to go away perhaps they should spend a little more time/money on the front end and get someone better. Heck, if someone wants to make me a good deal I’ll settle for a $5 million package and promise to leave before I f*ck things up too badly!
Apr 21, 2008 - 6:14 am 25. Ted:Herb, why isn’t Al Gore fair game. I don’t think it is trivial when:
1. Leaves the lights on,
2. Flys in personal jet,
3. Buys shame carbon footprints from himself.
4. Will not debate the “science”
Whose head is in the sand?
Apr 21, 2008 - 6:24 am 26. Bill:We the “stock holders” of our government need look no further than Congress and those aspiring for President. What financial sense does it make to spend 5 million of your own dollars to get a job paying $200,000 a year for the next four years? What about it, Hillery?
Apr 21, 2008 - 7:03 am 27. Hoss:Just another reason politicians should not be allowed to mess (pun intended) with capitalism.
Thanks for setting Mark Goodman straight, Steve. I guess when you’re an actor or a ballplayer you get what the market will allot, but when you’re a CEO the market has nothing to do with it. Brilliant Mark. You’re the reason it was suggested that everyone should have to take Econ 101. Class warfare’s for those who are unhappy with their own failings and shortcomings, gotta blame it on somebody, ya know.
Apr 21, 2008 - 7:22 am 28. George:Congress could care less if any of this makes any logical sense and simply panders to our well-trained feelings of inadequacy as middle-class schlubs. As long we are too busy to take a good look at what our Government itself actually does with OUR money, all is well and good to them. Pandering to us some semblance of ‘fairness’ towards the general populous simply takes the light off who the real crooks are in this this nation.
Apr 21, 2008 - 7:35 am 29. Tom Horne:Steve,
Agreed, an MBA does does not assure success as a CEO, but it indicatates the aspiration. Given the number of aspirants to be CEO’s, and the relatively unchallenging body of knowledge required to be a CEO, there is no shortage of capable potential CEO’s out there. Talent and drive are not rare comodities. What I find surprising, and perplexing are examples where boards and CEOs do not appear to be grooming successor CEOs. This would appear to me to be part of their duty to assure the future of the company. An example would be SAFECO insurance. In 2001 after a period of losses they hired as CEO an outside insurance industry executive, who brought in a few of his own people and they promptly turned the company around by divesting recent acquisitions that had not worked out. Five years later this CEO departs with a golden handshake for a good performance. His chosen replacement was a successful CEO in the energy industry, who never spent a day in the insurance industry. They touted her leadership and assured everyone that one of the board members would take her under his wing for OJT and everything would be fine. Just looking at the stock price, it went up about 18% and is now back down about 18% below where it was when the new CEO took over in Jan. 2006. No disaster, but not a great performance compared to the steady rise with her insurance industry expert predicessor at the helm. I am sure that her defenders will point to market forces beyond her control, they always do when stocks go down, but fail to mention these forces when markets go up. SAFECO had had an infusion of new blood with the new 2001 team that was such a success. These folks had not had a chance to go stale. Why didn’t they groom one of these experts to become the next CEO? I don’t understand. The risk of a home groomed insurance expert compared to a proven CEO from an intirely different industry seems like a better bet to me.
Anyhow, my basic point is that CEOs are supposed to lead and motivate, in addition to setting the right course. A very large percentage of them are abusing our system and taking too much for themselves, because they can, regardless of perfomance. This is a demotivator for their employees. This is damaging to the public’s faith in our system. This abuse will be corrected in time, either by laws that will have bad unintended consequences, or by self policing. Greed is afoot, there will be no self policing. People free to act like pigs will act like pigs.
Apr 21, 2008 - 11:20 am 30. Scott D:Investors have the BIGGEST say in CEO pay. They can sell their stock and put the money in a competing company.
Apr 21, 2008 - 11:40 am 31. James:Having an MBA does not necessarily make one a better CEO or businessman (or businesswoman). However, like everything else in life, there need to be some barriers to entry. A college degree is no different. There are many jobs out there that you cannot get without an undergraduate degree.
And quite often, your degree, even your major, teaches only a small amount of what you will actually need to know to do your job in the “real world”.
These men and women CEO’s make a lot of money because they do what few others are willing to do. If they make the right calls, they generate wealth for many. I agree that the “golden parachutes” for ousted CEO’s might seem a bit unfair, but these talented men and women would probably not sign on for those jobs without some measure of protection. It’s no different than a professional sports contract – guaranteed money plus some incentives for good performance. Poor performance gets you traded or released, but you still get some or most of your guaranteed money.
The wealth and class envy of some of the people in this country is idiotic. These men and women worked very hard to be where they are in life. And don’t think for a second that they haven’t paid for it in other ways. Yes, some liberal will no doubt pipe up about their mother/father/grandfather who worked hard for sixty years and didn’t become a millionaire like these’s CEO’s. Actions do not guarantee equal outcomes. It’s all about what you choose to do with your life. I’m not rich. I will never be rich. But it’s not my place and it’s not fair to begrudge others their wealth.
Apr 21, 2008 - 11:54 am 32. Lynn R.:“They mean well, of course…”
Oh, please. Most politicians know perfectly well that their actions cause more harm than good for their citizens. They do it for their own personal gain. Period.
“mean well…” my fat hairy a$$.
Apr 21, 2008 - 1:38 pm 33. Tom Horne:As part of thinking about this topic, I put in a google search “incest corporate board”. One of the first items to come up was a listing for Lee Iacocca’s book “Where Have All the Leaders Gone” on books.google.com. Clicking on the link takes you to a segment titled “INCEST IN THE BOARDROOM” This segment and the available pages before and after it pretty much make my point. The system has become corrupt. The CEOs and boards are taking more than their share, because they can. Love him or hate him, I think anyone would have to agree that Iacocca knows what is happening in our corporate boardrooms.
Apr 21, 2008 - 2:16 pm 34. Jordan:There’s a very simple market solution to this problem: Don’t invest in companies whose CEO compensation you don’t agree with. But don’t presume that the government should tell other investors how their company should be run.
Apr 21, 2008 - 3:46 pm 35. Chris:Policitians are shameful in the fact that they will never solve the problems, just exacerbate them. What better ploy to get them in the news, as well as get them re-elected. Notice that Social Security has not been solved, energy problems are looming again, inflation, and the same problems that faced Jimmy Carter when he was President. Those that refuse to learn from history often repeat it. Why do you suppose Ted Kennedy or Pat Leahy has been re-elected so many times to the Senate? I know people in Massachusetts and Vermont are much smarter than those two “gentlemen.”
Personally, if I have troubles with the amount of money an actor, athlete, CEO, etc, make, I just take my business elsewhere. These people draw their salaries because of the demand by us. I take my $$ to other places. I choose to spend my dollars where I get the things I need, vs paying a millionaire who wants to whine about his “tough” life. If I purchase a product that I think does not give me the value I have paid for it, then I am not going to purchase their product again. It reminds me of the “Buy American” campaign when the Japenese were out producing us, making better quality products, and handing us our backsides on a platter to us, and the American product was a piece of junk. Suppose Honda, Toyota, Hyundai, and Kia are outperforming our “Home” automakers? Instead of being inoovative, we copy what they offer now (100K warranties).
If you really want to change things, how about raising the price of corn, grain, etc to the “oil” cartels in the Middle East. Everytime they raise the price of cruder, we raise the price of food sent to them. Watch Oil come down in a hurry.
Chris
Apr 21, 2008 - 3:51 pm 36. John Moore:Ah the naivette… that market will solve all.
I wish that were true because the alternative, government, is pretty horrible to contemplate.
But in the US, most company stock is held by fiduciaries – pension funds, mutual funds, etc. Those fiduciaries have the power, not the individual stockholder. Unfortunately, most of these fiduciaries are focused on the short term, which puts the interests of the decision makers at adds with those of the capital owners. This is known as a moral hazard and represents a defect in the market system.
I don’t know the answer to this very real problem. I’ve seen the havoc the politicians brought us with Sarbanes/Oxley (my employer went private to save $7 million a year in compliance costs). But to the degree that decision makers’ incentives are not aligned with those who own assets (or risk), the market functions correspondingly poorer.
So when then guy who is trading the stock for a mutual fund is rewarded on how well he does with his fund each quarter (or year), and the owners of the fund are interested in long term value (e.g. for retirement), things don’t work right and the CEO’s and others get rich contrary to the interests of the owners. And this is just one example – incestuous boards are another, and I’m sure this disconnect exists elsewhere as well (it is a fundamental cause of the mortgage crisis, for example).
Apr 21, 2008 - 6:05 pm 37. jeff:–These people draw their salaries because of the demand by us.
Athletes sell their skills to the highest bidder. Free market. Good for them. What if instead, their salaries were determined by a Board of Salary Directors, made up almost entirely of other players? Quarterback pay determined by other quarterbacks–higher pay for their buddies means higher pay for them. Owners had no say in the matter. Don’t like it– too bad. As long as there was still something in it for the owners, they wouldn’t have much choice but to pony up. Does that sound like free market? It sounds like a racket to me.
Apr 21, 2008 - 6:34 pm 38. Aaron:It might be useful to consider that performance is relative, i.e. you and I may think a CEO drove their company into disaster, but in reality, the company might have been even worse off without that CEO. Also, most businesses fail. Plain and simple. Most new products fail. Plain and simple. This may not have so much to do with the leadership as with “the market” not being a predictable beast. So the “golden parachute” may simply be a way for to allow a qualified individual to still get paid compensation for a lot of hard work that ends in failure.
Maybe we should also consider why we pay unemployment to people who “lose their jobs” a.k.a. fail miserably. Sure, we don’t want to blame the workers who run the machines or the middle managers, but they also can fail at their jobs and then they get unemployment…WTF! (Difference in amount, true, but same point.)
Apr 22, 2008 - 8:29 pm 39. Herb:Ted, Al Gore IS fair game…but does he need his own category? He fits in all the others nicely.
I guess it’s just for yuks. You chuckled a little, didn’t you? I know I did.
Still though, I find the Onion funnier for some reason…
Apr 22, 2008 - 10:14 pm 40. tometalk:Duty to investigate
I personally invented the Overlay Cosmetic Appliance or as the media calls snap on teeth. After my appliance was aired on NBC news stations in 2004, (Video URL: http://video.msn.com/video.aspx?mkt=en-US&brand=&vid=5c90e5bc-31e5-4e37-9d23-9884be1846d1), it became an instant hit. Soon after, a few dentists determined to cash in on the popularity of my appliance presented a plastic appliance that has been around for thirty years and mostly used in movies to create various characters. The following are comments are from patients who got scammed:
“I went to NYC and wasted $1500 for a lower piece that looks like a toy for Halloween. I had to pay up front and when I picked them up and had them placed in my mouth, the whole office staff raved how real and beautiful they looked. The more I looked at them, the more I hated them. It also hurt. When I removed them, I though my teeth were going to fall out. I called the next day and wanted my money back. I couldn’t handle how FAKE they looked and my family and friends agreed. When I went to the office, the Dr. was a jerk and everyone was so different. How dare he sell a piece of plastic toy for $1,500? To make this miserable story short, he refunded $500 and I had to sign a paper. I hope he gets caught and exposed real soon. I won’t say his name, but since there are only a couple of them using the same appliance and story, I would hope they all meet with law suits soon. I work hard for my money and I feel I have been robed and he got away with it and continues to do so
“Hi Guys I live here in New York and was very interested in the snap-ons until I went to see Dr “I will not go back to again”. 1st of all they told me that the consultation visit was free. But when they told me that it will cost me 2,700 for the upper and lower and I will have to pay up front, no refunds, I didn’t want them. They charged me $100.00 for the 2 minutes of consultation.”
“These are a complete joke. Don’t waste your time or your money unless you want to look like a circus freak. I’ll be lucky if I get back even half of my bill. I called the dentist 4 hours after leaving because granted the time I allowed to get used to it, I still hate them every time I look at them. I had to take them out. Point in case: Snap on teeth are just that; Snap-On teeth. So if it’s too good to be true, it probably is.”
“They look like a big hunk of white plastic stuck to your mouth.”
“They are not worth the money, I wasted mine. And I am angry.”
“My snap on smile looked huge and the dentist told me I will get used to them. At work, my co-workers said I look like Jim Carrey in the movie Mask and everyone had a good laugh. I will try to return them and get my money back. Those teeth are a joke. How can dentists be allowed to sell them?”
This is comment #2805. It was posted in reply to comment #2719 on U.S. News & World Report discussion forum. “I believe you should approach a journalist and ask that an article be run in a newspaper asking the public to write in, if they have had a similar problem with any dentists in the City. Get names of the dentists concerned. Then the letters should be compiled and sent to the FDA or similar body for investigation. Even though you have been forced to sign a `default’ agreement and were `paid off’ with $500 the dentist is still in business as no one stands up to him. I don’t know the legal implications, but newspapers are powerful allies, it is worth a try.”
Is there a journalist out there who is willing to get to the bottom of this quick fix dental scandal?
Arvid Saunaitis
Jul 23, 2008 - 2:13 pm 41. Bill:A former dental technician
dentalforum@msn.com
http://tometalk-erudite.blogspot.com
Snap-On Smile has recently been featured in numerous national and local publications and TV shows including: The Daily Buzz, Health Magazine, Houston Chronicle, Inside Edition, InStyle Magazine, Miami Herald, Newsday, New York Daily News, New York Post, New York Times Magazine, The View and USA Today to name a few. Dr. Marc Liechtung claims that due to the overwhelming response to the device, Snap-On Smile is now available at professional practices nationwide. If the media managed to accomplish that for him, why don’t they want to hear from the public who were victimized by him and his appliance?
Sep 5, 2008 - 5:20 pm 42. Distinctive:Did dentistry stoop so low to sell a product or is it that no one knows what they are talking about? The answer lies in an E-mail I received from a friend who is a dentist:
Lies, Myths, and Fairytales told in Dentistry
Sep 9, 2008 - 8:05 am 43. Yolanda Gibson-Michaels:Myth #1. All you have to be is a good dentist and patients will flood your office.
Reality: The public doesn’t know the difference between a good and a bad dentist.
Good Dentists are usually to busy helping patients and don’t spend enough time to promote their dental practices. Bad dentists know how to attract unsuspected patients and later talk them into procedures they don’t need.
Myth #2: Advertising and Marketing is unprofessional.
Reality: Advertising and marketing is the best way to educate the public on what they need and to sell them what they don’t need.
Myth #3: We are in a Recession.
Reality: While The New York Times and CNN is brain washing everyone about the doom and gloom of our economy, those who know how to take advantage of the situation also know how to profit from it. I believe that while some dentists are using this philosophy to promote business, other dentists use it to “clean patients”. The term clean is a term thieves use on the streets in Russia to rob unsuspected tourists.
Distinctive
Investigate and indict FDIC reported corrupt officials.
Sep 28, 2008 - 6:19 pm