CEOs in the US are underpaid
January 20th, 2007 | by Craig R. Harmon |or so says Steven Kaplan of the University of Chicago at the Harvard Law School Corporate Governance blog.
Oh…so ALSO say Andrew Sorkin and Eric Dash in, of all papers, The New York Times (unfortunately, behind the TimeSelect pay-wall).
33 Responses to “CEOs in the US are underpaid”
By Lazy Iguana on Jan 21, 2007 | Reply
If CEOs think they are under paid, they can go back to school and learn to do something else that pays better
By Craig R. Harmon on Jan 21, 2007 | Reply
Okay, I see the smiley-face so that’s tongue-in-cheek but when guys from U of C writing in one of Harvard’s Law School blogs and guys at the New York Times, of all places, start saying they’re underpaid, I tend to listen.
The thing is, CEOs don’t need to go back to school…they leave their low-pay, dead-end jobs at public corporations for higher paying positions at private equity-funded companies. The point being, market-wise, if publicly owned corporations can’t hold on to CEOs, they’re not paying them what they’re worth and the notion that CEOs are bullying boards to overpay them is, well, demonstrably not true.
It’s like free agent ball players with a genuine talent for the game. If team X wants to hold on to them, they’ve got to pay them more than other teams are offering or they’ll be snapped up by the Yankees. It doesn’t matter if one thinks that this or that player is over-payed. As long as there’s a team willing to pay him more, he’s underpaid and he’ll go where he’s appreciated.
By Paul Watson on Jan 21, 2007 | Reply
Craig,
So, what’s the solution to this crisis of underpaying? The companies will need moer money to compensate their CEOs to the level they feel they deserve. So would you like higher prices or more sacked/outsourced workers to pay for this rise? Because if the CEO is any good he’ll be able to raise sales to pay for his wage hike, surely.
You also mentioned ball players with a talent. Given that CEOs are paid more when their company loses money as well as gains it as a result of their decisions, I’m not sure where the link to talent comes in.
Plus if they all left for private equity companies supply would exceed demand and their salaries would fall back towards what they can get in the normal market and they’d be whining about being underpaid again. Maybe we should have a minimum wage for CEOs? If they leave, I’m sure you’ll find plenty of talented people willing to take on the job, underpaid though it is.
By Craig R. Harmon on Jan 21, 2007 | Reply
Paul,
It’s obviously not a crisis, unless your corporation is on the brink and you need a good turn-around guy, like Iacocca was for Chrysler back when. Then the solution is to pay through the nose or go under.
It’s not a matter of what I would like, it’s a matter of what markets will bear. I’m a believer in markets. I’m not Ayn Rand reincarnated but governmental interference and price controls and such warp the markets in ways that can be, although not necessarily will be, bad. It is clear that certain amounts of some kinds of regulation are needed.
Did you read the Harvard blog post? He made several points that deal with corporate performance and CEO job security. Now obviously job security of a CEO is in a whole different ball park from job security for us mere mortals since they get severance packages that would keep the eastern seaboard afloat for a decade even when they are ditched for causing a downturn in the business but still, turn one or two corporations in a southward direction and one is going to find it tough to be hired by any company except to clean toilets.
You are right…that is the way market’s work but the fact that that hasn’t happened, or hasn’t happened yet, is the whole point: top CEOs are still underpaid in publicly owned corporations.
By steve on Jan 21, 2007 | Reply
It’s GWB’s LIES that cause US OIL CEO’s to be OVER payed…
Dufass…
/4truth
By steve on Jan 21, 2007 | Reply
You know Craig, CEO’s of non-profit organizations have been on the rise as well, with some earning a couple of million annually. What does that say to the “donator” to charity who writes that off on his/her taxes? I mean, that has got to piss off some members of the left right?
PS. I thought I’d write that previous 4truth comment in there before he/she comes in here and slobbers all over your post with nonsense. I just feel mean today, that’s all.
By Paul Watson on Jan 21, 2007 | Reply
steve,
You’re right. That was mean of you. Funny, but still mean.
And as long as more money goes to the cause than before the CEO comes in, I can accept it. Golden parachutes in charities, probably not.
By steve on Jan 21, 2007 | Reply
It’s understandable that charity organizations have an employment cost but when salaries rise above inflation, like the CEO’s of big publically traded companies, you gotta wonder though Paul. People work for charities out of the goodness of their hearts not to make big bucks, we should all hope…
The current and last few CEO’s of the company I work for came from the street entry level position, in their early 20’s. It’s nice to know that I work for a company that promotes from within… you just have 20 to 30,000 heads to stomp on to get there.
By Lazy Iguana on Jan 21, 2007 | Reply
No, I mean they can go back to college or trade school or whatever and get a higher playing job. Learn to fix jet engines or something. Drive a FedEx truck. Whatever.
What does the CEO do that makes him/her “deserve” all that money? Does the CEO of UPS deliver a single package? Is that not the main business of UPS? Oh he comes up with useful crap like “mission statements” and does “strategic planning” and stuff. But the CEO is not alone - there are other executive managers to help with that stuff. And all the planning in the world is useless unless your plans can work in the real world - and that is where lower level management comes in. The manager of the shipping warehouse who has to see that all the packages get routed correctly and makes a fraction of what the CEO makes does that.
Sports players are crybabies. They throw/catch/kick/hit a ball for a living. And the expect millions in compensation. But this is only because morons pay all that money to watch the games - so it is all good. But millions of Americans work way harder to earn a whole lot less. That is just the way it is! Like it, or leave it. Or learn to hit a ball with a stick.
My heard bleeds for all these underpaid people. Ill try to remember how they are being exploited while I am flying in coach because I can not afford to sit with the CEO in first class
By Craig R. Harmon on Jan 21, 2007 | Reply
Steve,
I had to look twice at that one comment. I could have sworn it was 4Truth. You weren’t channeling, were you? Heh!
By Craig R. Harmon on Jan 21, 2007 | Reply
Lazy,
You wouldn’t find the CEO in first class. He’s flying his own jet.
By the way…
DA BEARS ARE BACK! They’ve struggled, especially Grossman, but they proved themselves a championship team today and a team worthy of going to the Superbowl.
They ain’t the ‘85 Bears, nobody ever will be but dey da Bears!
By Jersey McJones on Jan 22, 2007 | Reply
This is just silly. The boards and CEOs have colluded to rig the system so that they are way overpaid. I’m with Barney Frank - let’s pass a law that requires that shareholders - all shareholders - vote to decide the salaries and perks of CEOs. The system we have now is legalized conflict of interest to loot publically held corporations.
JMJ
By Omnipotent Poobah on Jan 22, 2007 | Reply
Craig,
I think you damaged our own argument with the baseball analogy. Player salaries have become so high (not just in baseball BTW) that people can’t afford to go to games and the team owners are always trying to find a way to deal with the escalation because it’s hurting their bottom lines (not unlike a company CEO who makes blunders and then collects a big bonus to stay and fix the problem).
The team owner’s position is a little like them saying, “Someone stop me before I overspend again!”
Maybe the better analogy would be a forest fire - the longer you let it burn unchecked, the bigger the fire becomes. True, it will eventually burn itself out (or a storm comes and puts it out), but not before there is a hell of a lot of damage.
I gotta go with Iguana on this one.
By Jet Netwal on Jan 22, 2007 | Reply
I don’t have the link, but I remember reading that CEO’s have jumped from 4 times the top employee pay to 46 times the top employee pay in fifty years. I’m not believing the quality of work is 42 times better. I do find it more true to human nature to fix a system to one’s best benefit.
By Craig R. Harmon on Jan 22, 2007 | Reply
Omnipotent,
I know that the ball-player analogy is a tricky one but I think it apt, as I wrote it. At some point, players’ salaries may have to come down to earth but I’m not so sure that that’s necessary. Already I would much rather watch a game on tv, for free, than go to a park miles away, pay to park, walk to the stadium and find a seat, pay through the nose for a beer and brats, share a bathroom with fifty other men, miss an exciting play while I’m gone to the bathroom, try to find my car in the lot and then risk life and limb trying to get out of the lot and back on the road and home.
I wouldn’t do it if it were all free.
So I really don’t know what’s going to put downward pressure on the salaries of professional sports players.
The market value of a CEO is just as tied to his value to a corporation as the value of a Michael Jordan was to the Bulls franchise. Eventually, ball-players price themselves out of the game. That is, they either wake up to the fact that no team will pay what they think they are worth and they accept what someone IS willing to pay or they get out of the game but as long as there’s a team willing to pay more, they’re underpaid…whether we fans think they are or not.
By Jersey McJones on Jan 23, 2007 | Reply
Craig, do you not understand that the system is rigged? Japanese and European corporations do just as well as our’s but you don’t see their CEO’s looting public corporations, do you? This is NOT the ”free market” - this is COL-LUS-SION.
JMJ
By Craig R. Harmon on Jan 23, 2007 | Reply
No but I can read the information that I provided which tends to argue against your point.
By Jersey McJones on Jan 23, 2007 | Reply
How can you argue it? The boards and CEO’s are picking each other! They are looting publically held corporations without the conent of the shareholders! Look, if you own a private company and you want to loot all the profits for yourself, then fine. That’s your business. But when it’s a publically held corporation, then the government HAS to regulate it and what’s happening now it an unregulated system run amok. If you think CEO’s are underpaid, then fine. When America is a Third World shithole and Japan and Europe are rolling along just fine, then we can sit around and lament together.
JMJ
By Craig R. Harmon on Jan 23, 2007 | Reply
Jersey,
I don’t argue anything. I leave that to the scholars. Got a bone to pick with the experts, take it up with them.
By Jersey McJones on Jan 23, 2007 | Reply
Experts are here for you and I to read and listen to. They come in all different stripes and have all sorts of educated opinions. Just the same, they are not the be all and end all of human thought. It’s up to us regular humps in America, Craig. So we read and we listen and we come to a conclusion - oh, and we vote.
If you think CEO pay is too low, like I said, that’s fine. No other First World nation has the disparity of wealth of our’s, and though we may be larger and less homogeneous than rest of the First World, that is not an excuse to allow for the one thing our Founding Fathers loathed and detested the most - Aristocracy. The Right’s take on the CEO pay issue, which is rationalization for the sake of dissonance over a failure of Smithian theory, is the same as their take on the Inheritance Tax, Institutional Utilitarianism, and other issues in which the the people have prerogative to act on the ”private” sector - and PUBLIC companies are owned by the shareholders, as a certain corporate killer named Al “Chainsaw” Dunlap used to oft remind us.
JMJ
By Craig R. Harmon on Jan 23, 2007 | Reply
“So we read and listen and we come to a conclusion…”
This is so. Have you read the link to the Harvard Law School Corporate Governance blog and the NYTimes article? Good. Not being an economist, I’m in no position to argue this with you. I have taken no position on this other than reporting that some smart folk have argued Not A to your A. I’ve read their arguments. I’ve read yours. Not being an expert, like most laymen, I go with the folks that give the greatest impression of expertise. Sorry. If it’s an argument between Jersey McJones and some U of C guy writing at a Harvard Law School blog, well, you can probably guess which expert I’m going with. Nothing personal but when you’re a layman, you’re pretty much stuck with argument from authority. Guy with the most letters from the most prestigious institution wins. I’m not saying you’re wrong. Just telling it the way it looks from here.
In any case, I’m not the guy to argue this with. The Harvard Law blog, like most blogs, allows comments. I suggest that you go there and debate the author. It will, at least, be much more intellectually stimulating for you than a debate with a dummy like me.
By Craig R. Harmon on Jan 24, 2007 | Reply
By the way, if you’re wondering who Steven Kaplan is and why he should be taken as an authority in the subject, this should give a good idea.
By Paul Watson on Jan 24, 2007 | Reply
Craig,
Does that mean you accept the experts view on climate change and what should be done about it at last? After all, several thousand senior climate researchers have an awful lot of letters after their names and belong to a lot of prestigious intitutions, right? [/minor snark]
By Craig R. Harmon on Jan 24, 2007 | Reply
Paul,
Yes. Of course I recognize that global warming is real, I accept that people are contributing to it. If, by “what should be done about it” you mean signing on to the Kyoto thing, that’s a different story. I don’t think that climatology tells us what specific policy is the right one to follow. Kyoto is problematic for geopolitical and economic reasons.
Even Bush accepts that warming is occurring and that man is a significant contributor to it.
By Jersey McJones on Jan 24, 2007 | Reply
Craig, their are experts on all sides of this issue as with any, and yes, I am quite familiar with Kaplan. I have heard all sides of the issue and I stand with the likes of John Kenneth Galbraith. The Kaplans and Friedmans of the world have been pretty thoroughly proven WRONG about everything they preached. Get with the winning side, Craig.
JMJ
By Jersey McJones on Jan 24, 2007 | Reply
Ya’ know, I was thinking, I’ve always had a bit of a grudge with psychology, sociology, political science, and economics. As sciences go, they lack the controls and objectivity of the physical sciences. I was reading up on Kaplan, and I didn’t know that he was also into computers and engineering. I’ll tell you what. I’ll read some more of his stuff and get back to you. I want a more indepth understanding of where this guy’s coming from, because that article was too focused on confined, selective results.
JMJ
By Craig R. Harmon on Jan 24, 2007 | Reply
I look forward to it.
By Jersey McJones on Jan 25, 2007 | Reply
Well, Craig, I have to say that after looking around a bit, I still must stand by the critique that the conclusion of Mr Kaplan is too “focused on confined, selective results.” In this case he’s applying, and I simplify, basic human psychology with basic bottom-line corporate theory.
JMJ
By Craig R. Harmon on Jan 25, 2007 | Reply
Well, as to the focused point, I don’t think he’s saying, or trying to prove that ALL CEOs are underpaid or that NO CEOs are overpaid but that there are top CEOs of public corporations that are or they wouldn’t be skipping over to private equity corporations that pay more.
By Craig R. Harmon on Jan 25, 2007 | Reply
Jersey,
Let me put it to you this way:
Assume this is Intro. to Economics. I’ve had no prior study of economics. I’ve heard of the people that you’ve mentioned and perhaps one or two more but for our purposes know nothing about their theories or the competing theories that they have argued against. Assume that I know no economic jargon and the my knowledge of economics comes down to this: when supply exceeds demand, the price of a good or service will drop; when demand exceeds supply, the price will increase.
Now with the assumptions out of the way, explain to me:
1. What Kaplan is arguing for and
2. Why you disagree.
The more detail, the better but I’m not looking for a general theory of economics here, I’m looking for an explanation of this particular topic. Remember that jargon is verboten because I don’t know it and simply dropping the names of other economists and naming theories is useless because I won’t have the first clue what you mean.
I’m willing to learn. Are you willing to educate me?
By Jersey McJones on Jan 25, 2007 | Reply
Well, as you so astutely pointed out, I am not a psychologist (let alone an economist, whom I think are a little more scientific). All I was saying is what I will say now - let the public shareholders of public corporations vote on compensation, and then let’s hear about whether they are under or over paid. Democracy and capitalism together. I can live with that.
JMJ
By Craig R. Harmon on Jan 25, 2007 | Reply
Okidokey,
I was getting the impression that you had a fairly sophisticated knowledge of economics. I am ever in the market (the cheap to free market, that is) for new learning.