The Problem of Inequality: Outsource the CEO

Relating to CC204′s study of the problem of inequality is an excellent article in Slate discussing the unclear ways a CEO’s ‘worth’ is measured. Here is an extract:

It’s not exactly news that CEOs of big companies get paid a lot of money. And everyone knows that the pay gap between the big executives and the average Joe has been growing. The surprise revealed in a great new database of executive compensation—compiled by Equilar on behalf of the New York Times and covering U.S. firms with more than $1 billion in revenue—is the striking lack of method to the madness: America’s CEOs are paid a lot largely because other American CEOs are also paid a lot.

This reflects the fact that nobody really knows how to judge a CEO’s worth. Since the executive is hired by a board of directors that’s theoretically accountable to a company’s shareholders, it seems like CEO pay should have something to do with stock price. But nobody wants a CEO to focus exclusively on short-term stock issues and ignore the firm’s long-term strategic position. And even if you do focus on share prices, what’s the relevant issue? Absolute return? Returns relative to the market as a whole? Returns relative to the sector? Tim Cook’s compensation at Apple was recently restructured to emphasize Apple’s share price relative to the S&P 500, which in some ways hitches him less to how well Apple fares against its competition than to how investors view the technology sector as a whole. There’s enough ambiguity that you could argue a given case in many different ways.

For the full Slate article, visit slate.me/14mbpMw.

For the Equilar list of the 200 most highly-paid chief executives at U.S. public companies in 2013, visit nyti.ms/17NemKV.

Post a Comment

Your email address is never shared. Required fields are marked *