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Do companies need to pay CEOs etc. so much?

Austria!

CEO pay is very high. But does it need to be? Could a company not get another CEO just as good for a much more reasonable amount?

Here is a nice overview article

http://www.irishtimes.com/business/personal-finance/perils-of-paying-ceos-too-much-when-shareholders-say-no-1.2623950

1. Are CEOs really paid for performance?

Look at the variation between countries

https://img.washingtonpost.com/wp-apps/imrs.php?src=https://img.washingtonpost.com/blogs/wonkblog/files/2014/09/It-pays-to-be-a-CEO-in-the-U-S-The-ratio-between-CEO-and-average-worker-pay_chartbuilder.png&w=480

Look at the variation over time.

http://4.bp.blogspot.com/-wIifnRPip2E/UkHA0IIXaYI/AAAAAAAAAS0/bNOHx-cFOFo/s1600/1239554_10151840591376668_467263772_n.png

Are CEOs really 10 times more hard working or effective now than they were in the 70s. Are US CEOs really that much better than CEOs from all other countries? Or does this suggest that CEO is not tied to ability and performance but instead to a culture of remuneration?

If you look at that second graph again, you see that CEO pay went high coming up to recession, then went down during the recession and then rose again. Could you honestly think that CEOs started working harder or more effectively coming up to a recession, and then when the recession hit they started working poorly but then as things got better they began to work hard once more?
While CEO pay is tied to stock markets and stock market success is tied to prevailing economic conditions and market sentiment, is this really reflection of the work CEOs do?

2. Who even decides what to pay CEOs?

Not shareholders, but other board members, who all benefit from a culture of high managerial pay.

http://www.reuters.com/article/us-renault-shareholders-idUSKCN0XQ211
https://www.theguardian.com/business/2016/apr/14/bp-pledge-shareholder-anger-ceo-bob-dudleypay-deal

3. Even if paying the right people was worth it, are businesses any good at finding the right people?

This article is a good overview of the entire topic of CEO pay, and says no to the idea that business hiring practices are any good for CEOs.

http://d1c25a6gwz7q5e.cloudfront.net/reports/2014-02-2-Armstrong-paper.pdf

From the same article, that negative correlation between pay and performance is quite surprising.

4. Let's now distinguish between what something is worth and what you should pay.

If you're dying of thirst a big bottle of water has almost infinite value for you. You'd pay everything you had to get it. Is it worth €50,000 to you? Sure.
But if you're dying of thirst in a town centre full of shops selling water for around a euro, then you'd be a fool to pay more than a euro and crazy to spend €50,000.

So I'm not questioning if CEOs can have big impacts and bring in a lot of value (or lose a lot), but if there are equally good people out there willing to work for more modest money.

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sbsquarepants

Who cares. I couldn't give a toss if a private company pays it's CEO minimum wage or a gazillion dollars an hour. It's their money they can do whatever they hell they want with it. If I could talk my company into paying me 100m a year, I'd gladly accept it - problem is the fúckers just won't give it to me (They actually said I was being ridiculous at my last pay review - fúcking nerve of them:mad:)
State owned companies - that's a different matter.

Dohnjoe

Austria! wrote: »

So I'm not questioning if CEOs can have big impacts and bring in a lot of value (or lose a lot), but if there are equally good people out there willing to work for more modest money.

The premise of your post seems to be equal skill for less money - what is this based on?

In reality it doesn't seem to be the case, look at any sport, the top talent is paid accordingly

Yes they are obscene amounts - but that's what they are worth in a free market

Likewise the same for companies and corporations - if they want top talent, they need to pay top dollar. You want Ronaldo? you have to pay for him

Austria!

Stigura wrote: »

Just wondering where this, way over my head / interest level, discussion might go the moment we lob in " CEO's of Charities " ? What say do Their shareholders have?

I made this thread after a thread about charities where I questioned donating to a charity where the CEO was on £150k and didn't want to derail.

Atari Jaguar wrote: »

It's rising pay scales.. there's no company I can think of that doesn't have them.

I'm talking about the magnitude of the rise, where there is a lot of variation between companies.

Second Yellow wrote: »

A private company can pay their CEO whatever they please.

We can speculate as to what they should and shouldn't pay them

Yes, I made this thread up to do just that.

VinLieger wrote: »

Best CEO - "but that other crowd will pay me 3 times as much and better benefits"

Yes, that would be a winning argument, if we agree that you can identify the best CEO and there aren't absolutely loads of people who could realistically expected to do the job just as well.

These are two things I am sceptical of, extremely so in the latter case.

machiavellianme

jimmycrackcorm wrote: »

Apple kicked Steve Jobs out then when things went badly for them, begged him to come back. He made it one of the top ten most successful companies in the world.

None of that is true. Jobs resigned from Apple the first time (after 2 attempts to do so and an attempted coup to oust him after he messed up overspending on the development of an expensive white elephant, the macintosh).
He then setup Next which was an even more spectacular failure at first.
His return to Apple was because Apple bought Next.

A Dub in Glasgo

Do companies need to pay CEOs etc. so much?

No

VinLieger

GreenFolder2 wrote: »

There are plenty of cases of enormous bonuses paid to CEOs of banks that had to be bailed out and so on.

in probably about 90% of cases those bonuses are due to contracts the companies agreed to when hiring that person, not paying them would be illegal.

GreenFolder2

Share holders need to be lot more observant and hold some of the executives accountable. It's all fine and well being paid huge money, if you're adding value.

There are plenty of cases of enormous bonuses paid to CEOs of banks that had to be bailed out and so on.

VinLieger

Heres how this would go.

Company - "hey come work for us, your the best we will pay you this much"

Best CEO - "but that other crowd will pay me 3 times as much and better benefits"

Company - "yeah we arent gonna do that cus you know....... reasons"

Best CEO " yeah im gonna go to the other crowd"

Rinse and repeat for 2nd-50th best candidate

Winterlong

Pay peanuts, get monkeys.

gramar

CEO's and the people at the top set the remuneration policy.
Not voting to have a big salary, share options, perks etc is like ordering
salad in a steakhouse.

jimmycrackcorm

Austria! wrote:

CEO pay is very high. But does it need to be? Could a company not get another CEO just as good for a much more reasonable amount?

Apple kicked Steve Jobs out then when things went badly for them, begged him to come back. He made it one of the top ten most successful companies in the world.

darkpagandeath

Being top of the tree does not equal top performing. They have layers under them. Don't we see in Ireland the same failed lads going from gig to gig trashing companies then move on. The old peanuts and Monkeys does not work. We have seen what happens in banks all over the world and the financial institutions. More pay does not equal better performance after a certain level.

Second Yellow

A private company can pay their CEO whatever they please.

We can speculate as to what they should and shouldn't pay them, but at the end of the day, no company is likely to be swayed in the least by what the general public thinks.

Atari Jaguar

It's rising pay scales.. there's no company I can think of that doesn't have them. If the lower tier front end workers got paid the same amount as the executives why would anyone strive to be higher up?

DO YOU WANT TO BE ON THE BOARD OF EXECUTIVES SON

gee wiz mister what's the benefits

YOU WEAR A SUIT TO WORK AND GET SHOUTED AT BY SHAREHOLDERS

Wow! Is there a pay rise too?

No...

Pass.

Stigura

Just wondering where this, way over my head / interest level, discussion might go the moment we lob in " CEO's of Charities " ? What say do Their shareholders have?

Have at it, AH!

Enjoy.

[Deleted User]

Who cares? Companies can do what they like if the shareholders are fine with it.

One_Of_Shanks

How long is a piece of string? They could be paid anything from pittance to billions.