CEO Compensation
... received more than $20 million in loans, cash, shares and bonuses in his first year. He also negotiated the right to fly anywhere he wanted to in the company jet. Kmart filed for bankruptcy during this time but it is evident that there seemed to be no indication of this in Conway’s pay. Appendix A is a CEO pay chart. It compares the CEO pay, S&P 500, corporate profits, worker pay, and inflation in 1990 to 1999. The chart shows very clearly that there is a huge gap between the CEOs pay and the workers pay but what is worse is the similarly big gap between the CEOs pay and the company’s profits. There should obviously not be that much of a difference in either example. There are many more examples like the General Electric CEO Jack Welch. In 1999 he received $45.7 million in compensation, $46.9 million in stock option grants, $48.5 million in stock option exercises and $436.4 million in unexercised stock options. Since 1986, Welch has cut General Electric’s domestic work force by nearly 50% and one of his favourite phrases in his pep talks is “squeeze the lemon” when he is talking about production costs. His phrasing seems ironic when you look at his income in 1999. The Great Debate: Do the CEOs Deserve All That Money? The question of how much CEOs deserve is a bit of a controversial issue. The answer depends on whom you ask. Undoubtedly, you would receive differing replies from the average working class citizen, the government, the business worker and of course the CEO. One point that may have very little debate is the huge gap that exists between the average worker and the CEO. The top executive in a US corporation earns over 420 times more than the average worker. It is hard to imagine even the comfortable CEO seeing nothing wrong with this. Still, the question of CEOs pay does call up other views. In an article found on Fortune.com, when asked about CEO’s and executives pay, the CEO of a very successful Fortune 500 company was quoted as saying; “I’ve been on boards where the CEO earned unholy amounts of money. I don’t have any objections to that – in fact, I applaud it – if it’s truly earned” Besides the CEO, not everyone believes that cutting back on CEO and executive pay is advisable for a company that is not doing well. These people believe that this is the time that a company needs a leader with skill, experience and credibility. Some experts say that a chief who can guide a company through a bankruptcy is probably worth every cent they make, and possibly more. When WorldCom filed for bankruptcy Michael Cappellas was named CEO. The corporate board proposed he be paid $25 million over three years; a bankruptcy judge knocked this down to $20 million after an objection. A finance professor, Harlan Platt was quotes as saying, “In a world where football players are making $15 to $20 million, I’m not at all troubles that a guy like Cappellas is making $20 million over three years to save one of the largest telecom companies in America.” While this may be a common view among the higher business community, based on the literature out there, it seems to be a view in the minority among the general public. The average production worker who earned $30, 000 per year in 1996 would now earn $92,193 if their wages had grown at the same rate as that of an average CEO. Appendix B illustrates this point showing the average salary pace vs. CEO salary pace from 1997 to 2005. In 1996 Anthony F.J. O’Reilly, the CEO of H.J. Heinz Company received a compensation package worth $64.2 million making him the fifth highest paid CEO in the country. It was in this same year that O’Reilly closed 25 facilities and eliminated 2,500 jobs as part of a corporate reconstructing initiative. It is in the light of facts like this that I took a quick poll of 20 students as Eastern Commerce about CEO pay and compensation. The students were asked ten questions regarding this matter and the replies were overwhelmingly similar. When the students were asked to estimate how much the average CEO gets paid most made an estimate of about 1 million dollars. This was very inaccurate but when they were asked if CEOs in big businesses deserve the money that they are getting 5 of the 20 answered yes, saying that they did deserve it. The other 15 answered no, saying the CEOs did not deserve the pay they were getting. The last question that was asked was if they believed a CEO should be paid based on the company’s performance. Seven of the 20 said no and the other 13 said yes. Although this poll was just of students it does illustrate the ...