CEO Pay Today: Insane in Any Century

Many Americans may dream of catching up with the Joneses, whoever those symbolic Joneses may be. The conventional wisdom behind that old adage is that those folks have it good; they've probably achieved the American dream.

However, if the Joneses in question are some CEOs, the typical American had better gear up for some healthier habits and maybe hire a pill wrangler to track the dosage of allegedly immune system-boosting, life-extending supplements. That's because it'd take 3,489 years to catch up.

Expensive minutes, loaded hours
According to the Associated Press, the typical American chief executive officer received $9.6 million last year. Some rather atypical CEOs banked far more. The AP targeted Simon Property's (NYSE: SPG  ) David Simon as an example; his pay package was valued at $137 million last year.

It's easy to say, "Whoa, that sounds completely over the top" without having much to compare it to, but the Associated Press gave some valuable context to ponder.

Minimum-wage workers might as well forget making such a sum in their lifetimes. It would take them about 9,000 years to take home what Simon made in a single year. As for Americans making the median income, they'd face a 3,489-year slog to rack up Simon's one-year pay.

The AP also gave some additional food for thought. If Simon worked a 60-hour week, his pay would come out to about $44,000 per hour, or $732 per minute. Does that sound reasonable to you -- for any worker?

By comparison, the median CEO's $9.6 million payout last year sounds far more reasonable. Or is it? If you make the national average salary, you'd have your nose to the grindstone for 244 years before you'd rack up that sum. Unless any of these CEOs are making the big bucks to develop an elixir that extends our lifespans, it's not really feasible for many Americans.

The public at large may simply hinge on how wrong it all sounds, but shareholders have even more reason to weigh the consequences of such outrageous pay packages. Given the minute-by-minute breakdown and the reality of any human being's productivity, I'd venture to guess shareholders foot the bill for some pretty darn expensive CEO bathroom breaks at some companies.

Shareholder votes, CEO choices
Granted, Simon Property shareholders rejected the company's CEO pay policies in their say-on-pay vote. Last year's over-the-top "retention plan" pay isn't even the only outrage in this case; the company planned to boost Simon's pay over eight years' time, and most believe the board doesn't plan to back down despite shareholders' displeasure.

Simon Property's not alone this year in enduring the public shaming when a majority of shareholders vote against CEO compensation policies. Citigroup (NYSE: C  ) , KB Home (NYSE: KBH  ) , and Actuant are also among this year's say-on-pay losers.

It's a good sign that more shareholders are voting their displeasure. Hopefully, boards of directors will get the message that crafting and condoning insane pay isn't going over well with reasonable investors who care about their capital and the long term.

Furthermore, more investors need to ponder what good leadership really is. I'd argue truly good leaders make decisions that occasionally have to do with ethics more than their own narrow self interest. It's not impossible to make such choices, and occasionally some leaders do.

Sprint-Nextel (NYSE: S  ) CEO Dan Hesse recently cut his pay voluntarily by $3.25 million. Apple's (Nasdaq: AAPL  ) CEO Tim Cook has voluntarily relinquished $75 million in dividend income; he asked to be excluded from an employee plan that allows for accumulated dividends on restricted stock that hasn't vested yet.

Shareholders should appreciate the gestures that executives make that go against today's conventional wisdom: that CEOs should take whatever they can get, and never think twice about whether those pay packages are fair or reasonable to shareholders or other stakeholders.

I'll take the reality check, please
Keeping up with -- or catching up with -- the Joneses won't really make anybody happy. However, the outrageous reality disconnect that shows itself in many CEO pay packages should make everybody pretty unhappy, particularly shareholders whose capital is used in unreasonable, even lunatic, ways.

Let's not worry about keeping up with the Joneses. Keeping up with reality is what we should all focus on now, and the reality is, insane CEO pay needs to be brought back to reason.

Check back at Fool.com every Wednesday and Friday for Alyce Lomax's column on environmental, social, and governance issues.

Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (4) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 30, 2012, at 8:26 PM, corpgov wrote:

    I urge Motley Fool members to vote against most pay packages where the CEO earned above median last year and against the compensation committee who facilitate bracket creep.

    "Pay for performance" doesn't address CEO pay that is spiraling out of control based on most being above average. Read our voting guidelines at http://proxyexchange.org/2011/08/shareowner-guidelines-for-s...

  • Report this Comment On May 31, 2012, at 5:51 AM, SuntanIronMan wrote:

    "According to the Associated Press, the typical American chief executive officer received $9.6 million last year."

    The use of the word 'typical' had me wondering. Obviously that couldn't be the average pay of all the American CEOs of public companies. So I went looking for more details.

    In this case, typical is:

    - CEOs of S&P 500 companies.

    - CEOs of 322 of those S&P 500 companies (due to timing of filings, and only CEOs in the job for at least two years; in order to get comparison numbers from last year).

    The average CEO pay of about two-thirds of the companies that make up the large-cap S&P 500 index.

    Just thought I'd throw in those details in case anybody else was wondering what 'typical' meant. Definitely had me wondering.

    Interesting read as always, Ms. Lomax.

  • Report this Comment On June 04, 2012, at 12:17 PM, LoadDrive wrote:

    Personally, I don’t see where ANY man on Earth that is running a country Or Company is worth more than “a million dollars a year. After watching all the So-Called Great Leaders of Country’s and Companies over a life time, a person with a reasonable I.O. and some Real-Living experience & Education (Big-Box Colleges do NOT Count) comes to realizes that Most of the Companies that have done really well, has gotten there by a Leader what use “Good Common Sense, And watches out for their employees” Question: Is that worth more than a million dollars a year? My option, NO.

    Should a Good Leader be paid less than a million dollars a year; NO, but they should get some SMALL-Number of stocks added to the paycheck over a million dollars, IF the company does well that year.

    Also, Should government be involved in CEO pay / 100% NO.

    Wishing all “Good-Luck” on your investments.

  • Report this Comment On June 04, 2012, at 5:12 PM, Darwood11 wrote:

    Well, this is an interesting subject.

    I would urge shareholders to push for "clawback" provisions for all CEO compensation.

    However, the irony is, I heard that the Chicago's Teachers Union is getting ready to strike and they want a 30% raise over two years. Now, I think teachers get a bum rap and today are expected to raise children. However, teachers earn a very good wage and many get about 8 weeks off each year, to compensate for those 50-60 hour weeks during the school year.

    I consider large compensation or salary increases to be an affront to shareholders or, in the case of public employees, to taxpayers.

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