He Is 400x More Valuable Than You Are
Last week I wrote about David Calhoun, the executive Nielsen hired in 2006 to lead the company who is “earning” $78 million for five years of work (Shut! Up!), my point being that excessive executive compensation is ridiculous. Today, Ron Ashkenas made the same point by noting that CEO compensation in the U.S. was 40 times greater than that of the average worker in 1960 and now it’s more than four hundred times greater. Ashkenas writes, “From 1990 to 2005, CEO compensation increased 300% (adjusted for inflation) while the pay of average workers increased only 4.3%.” (“Rethinking the Assumptions Behind Executive Pay,” HBR)
Those are incredible statistics and they’ve been written about and talked about for years now but nothing is being done about it. It’s like watching that oil spewing into the Gulf of Mexico and everybody knows it’s bad and it matters to oil people because it looks bad, but eventually we turn our attention to other things and it’s back to business as usual. Nothing will be done about the cause of the oil spill or the causes of excessive executive compensation because the people who control those things stand to gain the most from the status quo. If I was making 400 times the average worker, I’d shut the hell up, too.
Ashkenas also quotes a recent study by compensation expert Graef Crystal, reported in Bloomberg Businessweek, that “there is no relationship whatsoever between CEO compensation and shareholder returns.” OK then, how about a relationship between CEO compensation and shareholder value? Steeerike Two! The creation of shareholder value may not show up for a decade or more but CEOs only stay with their companies an average of seven years. Well, maybe the real reason for these ridiculous amounts is to keep pace with all the other ridiculous amounts being paid to other CEOs? Touch ‘em all, David Calhoun! (It’s baseball season and the Twins are playing well. What can I say?) As Ashkenas writes, “Board-level compensation committees (usually including current or former CEOs from other companies) get input from executive compensation consultants (who survey the pay of other senior executives) and make determinations about what kind of pay package will be required to entice the candidate to sign on.”
My only issue with Ashkenas is his business-talk, wimp-out conclusion that the credibility of a company’s leadership may be compromised if compensation doesn’t correlate with results and that it might be time to rethink some of the assumptions behind senior executive pay.
The only ones who don’t know leadership has been compromised are the leaders. It’s way past time to rethink executive pay. And I’d like to know which assumptions are still valid.
To read more about immoral and excessive executive compensation and what it does to the employees who have to carry these boneheads (okay, that might be a bit strong), click on these articles:
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