Saturday, April 01, 2006

CEO Pay - Why does this bug me so much?

According to the Chicago Tribune, Mark Hurd of Hewlett-Packard got $23.2 million last year, 29 times what Carly Fiorina made in the same post just four years before. CEO compensation in the U.S. has tripled from 1990 to 2004. CEOs of eleven companies received $865 million over five years while presiding over a loss of $640 million in shareholder value.

There is also evidence that CEOs are lining their pockets through the glut of corporate mergers.

So why does this bug me so much? I guess as the Executive Director of Breakthrough, I feel the weight of the struggle to provide a living wage with decent benefits for all our employees all of the time. God provides and our staff are doing heroic work with very little.

Are these CEO's really worth that much money, that much more than people who assist the elderly to find housing, or teach kids to read?


Anonymous said...

CEOs are definitely sometimes worth very high pay. Many times they are not.

The stock of HP has gone up around 50% during the last year. This results in around $45 billion more added, in total, to all HP shareholders. If these shareholders share even a fraction of the $45 billion gain with non-profits, think of the impact. It is not clear whether the stock in HP would have performed the same under Fiorina.

Fiorina got a very nice severance (she got a lot of money from the company). Some think it was too nice and not legal. I do not know enough to have an opinion on this. See more at site below.

The decision to go with Hurd and not Fiorina is unclear. During the previous year, could Fiorina have done what Hurd did? Was Fiorina's effectiveness at HP somehow unfairly limited by her gender? These are very tough questions. I do not know.

Mega-mergers such as HP merging with Compaq (around year 2001) are very difficult and unpredictable. They often require significant elimination of duplicate operations. This takes a very big toll on people, and there can be casualties (including CEOs).

Given trends in executive compensation during the last 30 years or so, I do not think teachers are paid too much in the U.S. The gap in pay between teachers and execs has probably widened. If executives used the high pay in a benevolent fashion, this might be good for non-profits and the community. We see lots of negative examples in the media of questionable executive behavior. There are probably some very wise and generous executives as well.

Executives have tons of pressure and very high expectations placed on them by shareholders and others. The job is not easy. It is also important. Executive performance can determine the fate of large groups of people and communities. A successful executive is worth what he is paid and more. Christians should pray for executives and the business community.

Anonymous said...

Meg Whitman is a great role model at a very high-performing, innovative organization.

Anonymous said...

The "CEOs are lining their pockets" links to an article on Kilts, a CEO who sold Gillette to P&G.

Kilts is extremely well-respected. He did a great job grooming Gillette. Gillette became irresistable to P&G (P&G bought Gillette for a very good price for Gillette shareholders). In Chicago, a company such as Sara Lee or Kraft would probably benefit from putting Kilts at the helm.

From the outside, it appears that Kilts has been a good steward of assets entrusted to him. The community benefits in many ways from Kilts.

Anonymous said...

The link above takes you to an excerpt from "The Battle for the Soul of Capitalism" (a book by Bogle). This is the best book I've seen on the possibly disturbing trends in capitalism (includes exec compensation trends). Parts of this book might be good reading for an urban leadership class.