A recent article in the Wall Street Journal offered a closer look at CEO compensation worldwide and no surprise, American CEOs are the most costly.
The median salary including cash bonus for U.S. CEOs in office for at least a year totaled $2.3 million in 2004, according to a cited analysis of 421 large companies by Boardex, of London. That compares with $1.2 million for the heads of the 304 United Kingdom companies surveyed, $857,000 at 104 French companies and $386,000 at 95 Swedish concerns. The pay gap between U.S. and Asian business leaders is even larger. The article cites an analysis by Mercer Human Resource Consulting to report that the heads of the 248 Indian companies surveyed earned a median salary and bonus of $88,117 as of July 2004, compared with $317,864 for the heads of 187 Japanese companies, $302,078 at 174 Hong Kong companies and $263,301 at 394 Singapore concerns.
Further, the article would have us believe that the disparity between CEO compensation and the rest of the firm is rapidly increasing. The article reports that last year, the median salary and bonus for CEOs rose 14.5%, while paychecks of nonunion salaried staffers rose 3.4%. In 1960, CEOs earned an average of two times as much as the president of the U.S.; today they earn an average 62 times as much as the president.
Given the touted value premise of outsourcing of greater efficiency at reduced costs of ownership, perhaps American CEO's should examine how the strategy would work for them. And if this does not make competitive sense, they should use the above global labor cost analysis to question their price, its underlying value and demonstrate it to organizational stakeholders. After all, that's what they ask of their employees everyday.
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Article comments
1 - gonzo marx
/thunderous golfclap
oh , well said indeed!!
would that we could vote this comparison be done in EVERY stockholders meeting...
how many jobs have been shipped outof the country due ot just that logic?
thanks much for the Post and the good laugh it brought...
i need that
Excelsior!
2 - GPW
Willi Schlamm once said, "The problem with socialism is socialism. The problem with captialism is capitalists." CEO compensation packages seem to confirm the truth of that bon mot.
3 - Deepa
Capitalists and their implicit faith in efficient markets. Perhaps, its overrated.
4 - Bennett
Well written indeed! That we could have this piece in front of every board member of the top 1000 companies in the USA, 10 minutes before the next board meeting, and then see if there is any fallout over it.
One can hope!
5 - Nancy
Any CEO, officer, or board member making over 1 mill a year (including perks & benefits) salary should be shot as a gold-digging parasite.
6 - Phillip Winn
Make it 2 million, and I'll help them line up to be shot. :-)
7 - Phillip Winn
Especially since I think most of those CEOs are faking it.
8 - Maurice
I'm cool with CEOs making money - it's the bimbos like Britany and Jessica making millions that is just wrong!
9 - Nancy
I know a big-time megacorporation board member. Have known him for 20+ years. He pulls down as much in salary, bonuses, bennies, options, & god knows what else that he probably has more income annually than most 3rd-world countries. What does he do for all this? Very, very little. Mostly he plays golf at various exotic locations where he can chase women unobserved while he networks w/his stockbrokers & investment people on his cell phones. Once in a blue moon, he actually makes a decision. A couple of times a month he shows up at his office to sign papers. But most of his work is done by peons & underlings who are vastly underpaid for doing his thinking for him. He's a drone, and an obscenely overpaid drone at that. Line him up & put a bullet thru his head, say I. I wouldn't be so incensed about him if he actually DID his own work, or at least acknowledged & rewarded those who did it for him; but he doesn't.
10 - Deepa
Maybe you're right. Its interesting -Britany and Jessica (and a lot of the entertainment industry) too may be considered overvalued by some people. Hollywood is one of America's largest exports and eats into the local entertainment industry in several countries. Nobody's making a row of it. Perhaps, markets are efficient after all?
11 - Nancy
No - markets aren't efficient; marketing is. The only reason Brittany, Jessica, & their under-talented, over-paid ilk are in such demand is aggressive, relentless marketing & hype. If they weren't backed by all kinds of technology to make up for their lacks, that makes it possible for them to do what they seem to do, they'd be dogs' meat in 24 hours. Or less.
12 - Rich
>>I'm cool with CEOs making money - it's the bimbos like Britany and Jessica making millions that is just wrong!
What on earth do CEO's have to do with women singers?
The shareholders should be up in arms about this but they see things in $.
I believe the big CEO's are an image thing for big corporations. It's sick in a way the workers at the bottom get paid squat or loose jobs in America.
While these people like CEO's decsions are what type of club to use when golfing, yea they are experts at that too.
We are a consumer based society rather then citizens. Till this changes keep buying stocks in Disney and General Electric? Oh didnt GE buy Disney, ah they own most of US by now.
--Rich
13 - alethinos59
I am astounded how Americans continue to peacefully allow themselves to be screwed over by these fat cats. They wreck the economy. They mercilessly lay of tens of thousands. They ruin companies. They are beyond corrupt, and yet we don't protest one damn second over them. Instead we're out marching and running concerning breast cancer. We're worried sick over Tibet...
It's true what was said above - the trouble with capitalism is capitalists. Power corrupts.
The level of economic unjustice is staggering.
I once figured out that (and I can't remember it exactly - but this is close) if the CEO of McDonalds lowered his salary by 10% and cashed in hald his bonus stock - he could give every McDonald employee in the US a $1.20 an hour raise. That pathetic amount (in his eyes) would be all the difference in his employees lives between paying or not paying rent this month...
But lord, he'd be left with only about $900,000 a year.
And lord knows he is sweating night and day to steer the big ship of McDonalds through troubled waters. Why if he didn't work so hard we might forget tomorrow that there is a McDz on every friggin corner of America.
14 - Victor Plenty
We don't protest CEO salaries because each and every one of us believes, deep down, that one day we will be making that 2.3 million dollars a year.
I will win the lottery, or a previously unknown uncle will make me his sole heir just before dying, or the value of my insights gained from 40 years of staffing the drive-thru window will finally be recognized and I'll get promoted to CEO.
This nearly universal delusion is a pillar of capitalism. We're all afraid that if we go and make life complicated for the super-rich, we'll regret it when we become super-rich ourselves.
15 - Deepa
>>What on earth do CEO's have to do with women singers?
I think the point is that in a capitalist economy, you will find people and things that are over-valued in your reference framework but there exists a market for these people and things. Your reserve value for an item on ebay may be lesser than the winning bidder. You may think the mentioned women singers are worth their weight in the money they make but others might find it offensive that they accept that amount when there's so much wanting. Ditto with the CEOs. The stockholders support this decision. One may argue that the American companies are way ahead of their European counterparts in terms of innovation and productivity. Should the CEOs get the credit? I guess. But, how do you decide their compensation? Answers are difficult in a capitalist economy. We have, on several occasions rejected the citizen economy (which as Europe illustrates, is fraught with problems) that you recommended and actively chosen a consumer-based one. But, even in that, such form of compensation deserves a second look.
16 - alethinos59
Excellent post there Vic!
17 - randy Kirk
I'm a vastly underpaid CEO, have no desire to make that kind of dough, and loved the post for a completely different reason. It is a great idea. There are some outstanding CEO's in Taiwan and South Korea who should be just about ripe for US companies. With computers, cell phones, etc. it should be pretty easy to run things from their home countries, just like taking the orders for the pizza joint.
One little thing you left out. Stock holders are kind of like basketball fans. They pay for the players to be the best. They will pay more for a stock if they think their ceo, cfo, and pres are likely to improve the bottom line, just like we'll pay more for a sideline seat to see O'Neal if he's going to bring home the championship.
More to these things than meets the eye. Still, great out of the box thinking. Would you like to run my company?
18 - Dave Nalle
>>What on earth do CEO's have to do with women singers?<<
Nothing. Nancy just hates anyone who makes a lot of money.
>>The shareholders should be up in arms about this but they see things in $.
I believe the big CEO's are an image thing for big corporations. <<
That's a lot of it. But believe it or not, these overpaid CEOs do actually do something useful, despite Nancy's anecdote. When they're playing golf they're making deals, securing loans, negotiating contracts, setting up sales. When they go to a party they are networking and making connections with other companies. And for all the wealth they have they also have a great deal at risk, much more than any normal worker at their companies.
But your other point is good. Stockholders should demand that CEOs receive only reasonable compensation, but getting stockholders together to vote on something like that is extremely difficult.
>>It's sick in a way the workers at the bottom get paid squat or loose jobs in America. <<
Except that this isn't true in the corporate world. The base level workers get paid better than anywhere else in the world, generally have reasonable benefits and pretty good job security. The truth is that the level of CEO compensation has absolutely no relationship to how common workers are treated in that company.
Dave
19 - Deepa
Yes, as I said in my prior comments, perhaps, this is a price for good management. But I'd be more comfortable if this was the exception rather than the rule. Moreover, its not the "best" that are rewarded in this fashion. Here are the salaries of non-performing CEOs mentioned in the same article: Carly Fiorina left HP this year with severance of $14 million, plus a $7 million bonus and $23.5 million in restricted stock and pension payouts. ex-CEO of Morgan Stanley, Phil Purcell received a severance and retirement package estimated at $106 million for being shown the door. Former Co-President Steve Crawford is walking away with two years of severance estimated at $32 million after a mere 3 1/2 months on that job.
And performance? Lucian Bebchuk, a Harvard law professor and co-author of "Pay Without Performance" says a big portion of executive compensation, including rich guaranteed retirement payments and "stealth" benefits such as free lifetime use of corporate jets, are completely divorced from performance.
Of course, sound management must be recognized and rewarded. But how can you do so when you don't even separate the chaff from the grain?
Post many years of corporate living, I am back in the cushy life of academia...barring that and my penchant for cricket over baseball, I might have taken you up on that offer :)
20 - Randy Kirk
The fact that some high paid performers don't is not relevant. That is also true in sports, movies, etc. The contract is entered into based on previous performance and arms distance negotiations (maybe.)
Over time most excesses are taken out of any market.
Oh. Some of these smart guy have the option of starting their own companies and making even more. So part of their pay is lost opportunity cost.
21 - gonzo marx
check www.theyrule.net
you can see, it is not usually the stockholders, but the board of directors that set the CEO salaries, and many of them sit on each other's Boards doing the circle jerk
many stockholders have no clue what is going on, their votes get done in clumps by proxy...
now, can anyone guess who tends to control those proxies?
try the site..
Excelsior!