So, I was watching CNBC the other morning and there was an arguement among the hosts about the salary of a few CEOs that served for a short time and then last/were fired. Some of them received over $40 million.
A lot of people believe that the salaries of execs in the US are out of control, and to some extent they are right. But, the companies and their shareholders value those execs at that high level for some reason.
The biggest suggestion I hear is that the CEOs compensation should be tied to the stock price. Truth be told, it already is partly, because they typically have a raft of options or stock grants. BUT, consider the implications in having a CEO with compensation tied to stock price... It's easy to get stock prices to jump in the short term, if you are willing to sacrifice the long term, by cutting too much cost out, or doing things that impact the viability of the companies products over the long term. It's not practical to say to a CEO "after 5 years, we will evaluate the impact you have had on the stock and set your pay accordingly." No, you obviously have to pay them starting day one. So, evaluating the performance of the stock with any frequency will yield a conflict of interest for the CEO. He can pump up the stock, get his reward and split for some other company before the stock price drops. So, you might think that the person would have a hard time getting a position somewhere else - guess again. How did his departure look to the rest of the world? He left and a year later the stock is at a percentage of what it was when he left. Obviously he was the catalyst for the company doing so well.
So, do I think CEO's are paid too much? probably in some cases. I can't say what it should be, because it is different for each situation. I believe companies that fritter their money away recklessly on CEO salaries are destined to the forces of capitalism, so over the long term, it will be self correcting to some extent.
What do you think?
