Archive for the ‘Compensation – Executive Pay’ Category

Putting over-sized CEO pay into context …

February 25, 2016

First, I’m no apologist for CEO’s who rake-off outrageously large paychecks that no reasonable person can classify as “earned from value added”.

And, I understand that politicians like to huff, puff, lie and throw stones at fat cats.

But, when Hillary goes into her hypocritical rants about overpaid CEOs I gotta shake my head.

Prof. Mark Perry posted a great analysis debunking Clinton’s frequent riff about CEO pay being “300 times that of the average worker.”

Cutting to the chase, Perry crunched some BLS data and concludes that the ratio is more like 4-1/2 to 1 … $216,000 to $49,000

 

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Why the difference versus the 300 to 1 campaign rhetoric?

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$$$: How much is a degree worth?

January 9, 2013

Answer: About a million bucks.

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Here’s the data …

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How much are you worth?

December 4, 2012

Punch line: What goes into determining pay?  Here are 8 tips to discover the salary you deserve.

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Excerpted from Forbes, “How To Figure Out What You Really Should Be Paid”

Not sure if your salary is commensurate with your skills and accomplishments?

Curious how your pay measures up to others’ in your field? Want to know what you’re really worth?

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Here’s how to determine your value in the labor market:

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Why is exec comp so far out of whack?

January 24, 2012

Most folks seem to agree that executive compensation – especially CEO’s pay – is wildly excessive.

How did it get that way?

As partial explanation, I think that two well-intended legislative actions started the ball rolling with unintended consequences.

The first is Item 402 of  SEC Regulation S-K:

Item 402 – Executive Compensation. The SEC regulations governing disclosure of information about executive compensation are contained in Item 402 of Regulation S-K. Pursuant to Item 402, a public company must disclose to its shareholders information concerning compensation paid to its CEO and its four most highly-compensated executive officers (its “named executive officers”) during the last fiscal year, as well as its directors, in certain registration statements, its annual proxy statement, and certain other filings under the Securities Exchange Act of 1934, as amended (“Exchange Act”).

The motivation for the regulation is clear: provide shareholders with transparency into the way that top execs were being paid.

Sounds like a right thing to do, right?

The unintended consequence: For the first time, top execs had factual benchmarks re: how they racked up relative to their peers.

Underpaid execs used the data to get pay boosts; highly paid execs used the data to maintain their spreads against their less deserving peers.

For many (most?) execs, compensation became a manhood issue … and of course, bigger is always better.

Executive comp wars broke out and escalated.

A second legislated driver was Section 162(m) of the Internal Revenue Code:

Section 162(m) of the Internal Revenue Code generally limits the corporate tax deduction for annual compensation paid to executive officers named in the Summary Compensation Table to $1,000,000, unless the compensation satisfies the requirements for performance-based compensation. Stock options, performance shares, and cash-equivalent performance shares granted under the Company’s stock incentive plans have generally been entitled to the full tax deductions available because the compensation has been considered performance-based and not applied against the $1,000,000 limit.

Again, well intended.

Why should taxpayers subsidize over-sized exec comp?  If companies want to pay execs more than $1 million, they can … they just can’t take a tax deduction for the amount over $1 million.

So, what’s the problem?

We,, it’s the qualifier: “unless the compensation satisfies the requirements for performance-based compensation

To circumvent the rules, companies shifted to performance-based compensation tools … think bonuses and stock options.

So, bonuses became a larger part of comp packages and stock options became the major mechanism for “rewarding” execs.

In 1970, stock based compensation was less than 1 percent of compensation.

By 2000, it was around half of compensation.

Source

The heavy emphasis on stock options certainly provided some motivation to execs to boost share prices (that’s good), sometimes by focusing too aggressively on short-term results (that’s bad).

More to come …

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In pursuit of mediocrity … Congress moves to squash pay for performance.

April 14, 2009

Ken’s Take: (1) Expect this to spread to private industry as Congress grabs more and more power to control managers’ compensation  (2) And folks wonder why government bureaucracies are so inefficient.

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Excerpted from WSJ, “Forget About Merit”,  April11, 2009

Last month the Pentagon announced it would “review” a pay-for-performance system that now covers some 200,000 of its civilian employees. In short, merit pay for work well done.

House Democrats are now pushing to freeze pay for performance across the entire federal government.  They say, “A well-designed performance management system can recognize and reward high performance without a linkage to compensation.”

As the biggest merit plan in the government, the National Security Personnel System has been a prime target of federal employee unions  … Unions prefer a return to a universal General Schedule system, which compensates employees based on time served …  keeping workers out of a system where their own efforts can affect their compensation and advancement …  makes them more dependent on the union to negotiate for them.

During the campaign, Obama said he would consider an overhaul or “complete repeal” of the merit pay system.

Full article:
http://online.wsj.com/article/SB123940322061309643.html

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Who’s Paying for CEO Excess?

September 29, 2008

Excerpted from New York Times, “Need a Job? $17,000 an Hour. No Success Required”, by Nicholas D. Kristof, September 18, 2008

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Richard Fuld, the longtime chief of Lehman Brothers, took home nearly half-a-billion dollars in total compensation between 1993 and 2007.

Last year, Mr. Fuld earned about $45 million, according to the calculations of Equilar, an executive pay research company. That amounts to roughly $17,000 an hour to obliterate a firm.

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Three decades ago, C.E.O.’s typically earned 30 to 40 times the income of ordinary workers. Last year, C.E.O.’s of large public companies averaged 344 times the average pay of workers.

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These Brobdingnagian paychecks are partly the result of taxpayer subsidies. A study released a few weeks ago by the Institute for Policy Studies in Washington* found five major elements in the tax code that encourage overpaying executives. These cost taxpayers more than $20 billion a year.

Edit by DAF

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Full article:
http://www.nytimes.com/2008/09/18/opinion/18kristof.html?ref=opinion

*IPS Report, “Executive Excess 2008: How Average Taxpayers Subsidize Runaway Pay”, 
 executiveexcess2008

IPS Site: http://www.ips-dc.org/reports/

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