Wednesday, October 6, 2010

Executive pay is too high? Maybe.

How much money is 'enough' for a corporate executive?  And for purposes of this post, let's leave the 50-person company out and talk only about the Fortune 500 companies.

For 2010, the top 4 companies in regards to revenue are Wal-Mart, Exxon Mobil, Chevron, and General Electric.

Their CEOs made (rounding off the numbers):
  • Wal-Mart - $19 Million
  • Exxon Mobil - $27 Million
  • Chevron - $17 Million
  • General Electric - $10 Million

How much profit did these companies make for the previous year?
  • Wal-Mart grew 7%.
  • Exxon Mobil dropped 57%.
  • Chevron dropped 56%.
  • General dropped 37%.
Profits are certainly not tied to company performance.  Or at least, not significantly.  But should CEO pay be tied to company profitability?  And if so, how much?  Maybe the company would have had a worse year without the CEO performance.  Maybe the economy was so bad, there was no way they could have turned a profit.  Maybe they are in a multi-year transition.  Maybe.  Maybe.

The new financial reform going thru Congress has a requirement that companies disclose the ratio between CEO compensation and the typical employee's pay.

The average worker made these amounts at the four top Fortune 500 companies:
  • Wal-Mart - $29,000
  • Exxon Mobil - $70,000
  • Chevron - $69,000
  • General Electric - $71,000
All numbers above came from CNN (Fortune 500 2010 annual rankings), AFL-CIO (Executive PayWatch), and Career Bliss.

So the ratio of CEO compensation to average employee salary would be:

Wal-Mart - 655
Exxon Mobil - 386
Chevron - 246
General Electric - 142

Does this really tell us anything?  CEO compensation is known.  Average employee salary is known.  This 'ratio requirement' will tell us nothing.  If shareholders don't like their CEO salary, they can bring it up at the annual company meeting or some other way to get other shareholders to share their view.

People complain, at times, that firefighters and police officers are paid very little compared to what they do and CEOs are exhorbitantly paid compared to what they do.  If this were a socialist society, something would be done, by the government, to 'correct these wrongs'.  But since this is a capitalist society, pay is determined by supply and demand, and city budgets, and company revenues and profits.  The government has no part in determining what CEO salaries should be and adding a requirement to disclose the 'compensation/salary ratio' is just some hand-waving to make people feel bitter against the CEOs with a false measure.

The Real Say on Pay (New York Times)

No comments:

Post a Comment