Executive Compensation

Executive Pay

 

Everywhere that we look we see articles, reports and blog postings about excessive executive pay.  Now, I admit that I am a bit conflicted.  I do not consider myself a greedy person, but I do believe that I am willing to accept as much as someone is willing to pay me for my absolute best efforts.  But, when you see some of the examples of executive pay over the last few years – some have gone past fair compensation to pure greed.

 

One such example is Occidental Petroleum Corp. CEO Ray Irani who, according to the LA Times, received $460 million in total compensation in 2006.  But the all-time “best” was William McGuire, CEO of UnitedHealth Group who in 2006 earned $1.6 Billion.  Luckily only $333 million of the compensation was tied up in a stock options backdating scandal that may land him in jail.

 

“From 1992 to 2005, the average CEO saw his or her pay rise by 186.2%, while the median worker saw wages rise by 7.2%.” (2007, PBS.org)  According to Anderson et al. in “Executive Excess 2006,” for every $1 earned by the average worker, a CEO earns $411.  No single employee is valuable enough to command such a wide disparity in pay.  No one will argue that a CEOs job isn’t stressful and we recognize that if is nearly a 24×7 position.  But a CEOs base salary and bonus make up for the nature of the position.

Ratio Executive Pay

 

So while the chief executive has a base salary that is significantly larger than the average employee – understandably so.  What is inexcusable is when an executive breaks the law in order to line their own pockets.  “Fourteen percent of option grants to top executives between 1996 and 2005 were ‘backdated or otherwise manipulated.’” (2007, PBS.org)

 

The largest gap in executive pay is when we focus on the industry that has seen the largest jump in the price of its products – energy.  “CEOs of the top 15
U.S. oil companies are paid 281 percent that of the average CEO in a comparably sized businesses. The top 15
U.S. oil CEOs received an average of $32.7 million in 2005 compared to an average of $11.6 million for CEOs operating in a similar market size.” (2007,
PBS.org)  The poor oil companies are seeing the costs of crude oil go up, while their profits and executive compensation both go through the roof.  How will they manage to survive?

 

When you consider that they executive compensation committee is made up of senior executives or CEOs of other companies, is it any wonder that they approve these incredible pay packages for their “buddies?”  Imagine if there were caps on executive pay and these additional profits were either returned to the shareholders in additional dividends and/or reinvested back in the business – instead of lining one person’s pockets.

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Filed under CEO, CEO Salary, Ethics, Executive Excess, Executive Pay, LA Times, Occidental petroleum, Options backdating, PBS, Ray Irani, United Health Group, William McGuire

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