McCombs TODAY

1 response so far

We want to hear from you! To keep discussions on-topic and constructive, comments are moderated for relevance and for abusive or profane language. Please note that it may take some time for your comment to appear.

• 1 Bryan Stolle // Nov 4, 2009 at 6:35 pm

  This is a long complicated topic, but a few thoughts:

  CEO compensation is a market issue, not a governance issue. If an equally capable CEO was available for the job, and willing to take less to perform it, CEO compensation would decline.

  There is also the fact that CEO compensation is not radically out of whack in 9 out of 10 companies. For every public-company CEO who is making several or many millions per year, I can show you ten who make well under $1 million/year, and are often not the most highly compensated person in their firm.

  Yes, there are factors that can skew the market input – boards not doing their jobs, investor demand for short-term performance leading to short-term compensation objectives, etc. But by and large, the market sets the price.

  What usually goes missing in the debate is why there is not more “supply” of quality CEOs, thereby creating downward market pressure on salaries. Let’s see:

  • Public company CEOs take considerable personal liability today, even when others are the bad actors
  • It is a 24 x 7 job — a CEO never gets a true “day off”. The “average” employee clocks out, and doesn’t think much or at all about the company and its well-being, much less their specific job, until they clock back in the next am.
  • It usually takes years of expensive education to be able to even get on the CEO track – think doctor or lawyer education costs.
  • It takes decades of consistent top performance to even become considered for a CEO role. Consistent top percentile performance is a rare talent.
  • Good leaders are rare. Ones that can lead large groups of people to deliver consistent profits much more so.

  We pay professional athletes and screen actors and other performers (all of whom rarely create new jobs) “outrageous, obscene, [insert your pejorative adjective here] compensation” that often makes CEO compensation look downright cheap. Why? Because they are the best at what they do, and there is a limited supply. It’s no different for CEO’s. We need to drop this charade that the CEO role is “just another job” in a company. Too much of this debate is also fueled by politicians who would prefer the spotlight shining somewhere else, rather than on their own behaviors and performance.

  There is no doubt that we can and should improve the performance management systems that drive compensation, so that shareholder interests are as aligned as possible with management. There is also no doubt that boards should ensure they are getting the best value possible out of the CEO role. At the end of the day though, the market sets the price. Meddle with the market, and the people running our companies will look a like the people running your favorite government programs, with results that are similar.

Leave a Comment