The average CEO pay package at major American corporations is estimated to be between $10 million and $25 million, according to several sources. We recently covered The Conference Board's thoughtful recommendations for corporate governance reform, which included restructuring executive compensation. Fools should rejoice that discussion of CEO salaries continues.
According to an article in The Seattle Times, William J. McDonough, president of the New York Federal Reserve Bank and possible successor to Alan Greenspan, decried the fact that while 20 years ago the average CEO earned 42 times what the average production worker did, the average CEO today earns 500 times what the average employee does. McDonough noted, "I find nothing in economic theory that justifies this development... I can assure you that we CEOs of today are not 10 times better than those of 20 years ago."
One explanation for the current state of affairs is that companies have little choice but to up payments, given a short supply of talented top managers. This defense is offered by, among others, compensation consultants hired by CEOs -- who have a vested interest in propelling packages ever higher, since they get a cut of them.
The Post article quoted Jeff Sonnenfeld, associate dean of the Yale School of Management, saying "What's disturbing is that so many companies paying astronomical rates have performed poorly." It also quoted best-selling business author and thinker Jim Collins, who said, "We looked at 75 years of company data [for 1,435 major corporations over five years] and never found the slightest correlation between executive compensation and company performance."
Is any real change afoot? Maybe. The recent blow-ups of many high-profile companies with highly compensated CEOs have certainly weakened arguments for steep compensation. Here's hoping for a return to rational pay packages.