The question is: Are CEO salaries comparable to what they’re contributing to the value of their corporation? If so, this may justify what some would consider an outrageous amount. If not, is the company actually losing money, so it is in fact unfair pay? If compensation isn’t tied to performance then “excessive” compensation is a problem and should be questioned. – Excerpt
Joining host, Dennis McCuistion, to talk about CEO salaries are:
- Linda Wilkins: Tax Attorney, Wilkins, Finston Law Group
- Marc Hodak: Managing Partner, Hodak Value Advisors
Headlines often blare: CEO of such and such company is earning $50,000,000 a year, which by the standards of ordinary salaries seems outrageously high.
The question is: Are CEO salaries comparable to what they’re contributing to the value of their corporation? If so, this may justify what some would consider an outrageous amount. If not, is the company actually losing money, so it is in fact unfair pay? If compensation isn’t tied to performance then “excessive” compensation is a problem and should be questioned.
Tying compensation significantly – 75 to 80% of that compensation to actual delivered performance is a metric many companies are adapting. Often the numbers we see are a combination of factors. What the headline may reflect is actually what the SEC calls a “funny” number, not cash in someone’s pocket, but equity compensation, which an exec may forfeit if performance is not achieved.
There are two ways of providing equity: service or time based. Performance shares provide a second layer of performance an executive has to achieve: profitability, earnings, stock price targets, or return on equity among others.
Yet, while some may say that given the way CEOs are actually compensated, executive compensation is not excessively high, a disturbing trend is contributing to the gap in pay today. In the 60’s and 70’s the average CEO’s salary was 20 to 30 times higher relative to the average worker’s pay. In the 90’s that figure ballooned to 200-300 times the pay of the average worker.
Congress has actually contributed to how corporations are now compensating executives as more corporations take advantage of tax code loopholes. A corporation’s board has to ask what’s fair and what’s in the best interest of their shareholders. Numbers are public, unjustified severance packages sometimes have nothing to do with how performance was achieved, and the public is calling for more transparency.
Tune in to see how CEO salaries actually work, what is considered unfair, how socially conscious companies such as Whole Foods handles executive compensation, and how all of this impacts you and the cost of doing business.
Talking about things that matter… with people who care.
Niki N. McCuistion
Organizational Culture, Governance and Strategic Planning,
Consultant and Problem Solver