Tuesday, August 22, 2006

Are CEOs overpaid?

Yeah, I know I said I would go a while before posting, but Rich forwarded this to me and I think many of you will be interested. It is from MSNBC/Newsweek:

A few look-ins:
*"Ogling executive pay is the spectator sport of business. The catcalls from the stands have gotten louder as new studies throw out eye-popping statistics about how rich CEOs are getting, while the rest of us worry about keeping our jobs out of China. One such: the U.S.-based Institute for Policy Studies notes that CEOs made 142 times more than the average worker in 1994—and 431 times more in 2004."

*"Democratic Congressman Barney Frank is proposing a Protection Against Executive Compensation Abuse Act, which would limit tax deductions for companies that pay executives more than 25 times the lowest paid worker. But even as the drumbeat for reform grows louder, some new research is questioning just how out of proportion these megapackages really are—and whether more regulation is the best way to scale them down.First, there's the issue of metrics....[the article then shows that using medians reduced the average CEO to average worker pay multple to 187].

*Xavier Gabaix of MIT and Augustin Landier of NYU say that since 1980 the pay of CEOs has risen in lock step with the market capitalization of their companies: both are up 500 percent.

*"Good governance still plays some part in determining pay—the researchers say that CEOs can garner 10 to 20 percent more by going to a firm with a weak board. And cultural mores play some role, too; many of the Japanese firms studied were as big as American firms, but executives were paid less and changed jobs less often."

*"...nearly all firms are moving toward heavier reliance on bonuses. The average dollar amount of bonuses has doubled in the last three years, as they make up a growing proportion of pay...."

Interesting article and an easy read so it is perfect for the final "lazy, hazy, crazy days of summer."

Thanks Rich!


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