US CEOs enjoy 40% pay rise

[Crezth]

Ok, so the function of this social stratum is to ensure a sort of circulation between classes, to preserve economic and political dynamism, am I understanding that correctly? And the question to Luiz is basically whether or not he considers this function to be necessary?

Yes! He may disagree with some of the premises, which is why I invite him to answer comprehensively.

Thanks for clearing this up. My training in dialectic is sorely lacking.

 

[luiz]

Well, you're living in fantasy land. In the real world CEOs control pay committees and shareholders, though theoretically controlling CEOs, do not in practice control anything because of the complex way shares are owned. But that's ok, because this is the way the world works and its therefore entirely right and proper.

The fact that the equity premium in the US has been somewhere between 3.5% and 7% per year in the last hundred years (dependin on how you count it) is not a fantasy, it's a hardcore and extremely researched fact. Even adjusting for risk, American listed corporations have far outperformed the risk-free rate. Shareholders are hardly victims, on average they have reaped great rewards for their investment and today they have more power than they ever did (see the 80's).

 

[Pangur Bán]

The real question is whether it's a great thing, or a really great thing.

Ponders ...

The fact that the equity premium in the US has been somewhere between 3.5% and 7% per year in the last hundred years (dependin on how you count it) is not a fantasy, it's a hardcore and extremely researched fact. Even adjusting for risk, American listed corporations have far outperformed the risk-free rate. Shareholders are hardly victims, on average they have reaped great rewards for their investment and today they have more power than they ever did (see the 80's).

So basically you're introducing a new topic, as no-one has been discussing whether shareholders benefit from our financial system. Obviously they do.

 

[innonimatu]

These are the people who are experiencing stagnant wage growth, which is a *really big* problem for the US. When everybody could just throw stuff on credit (which they did for the 80s and 90s), one could still have purchasing power with stagnant wage. Now that those days of reckoning are here, we don't have a strong consumer base anymore.

The demise of manufacturing has a *lot* to do with this, but it hurts even a lot of educated, white collar workers. Somebody with my job responsibilities and education would be doing MUCH better (in the US) 15 years ago.

I've been saying that here ever since I joined the forum, and saying it for the past 15 years to whomever wanted to listen. It's not just an american problem, Europe is in almost as deep as well. It took years of a deepening crisis but I'm glad that a lot of people are finally starting to get it! Some others, namely those who see themselves so far as "winners", mostly a minority of young people who've landed good management jobs and had their wages increase over the past few years, will continue to refuse to see it. But, by now, they re a very small minority. Without the debt opium everyone else is waking up.

 

[luiz]

So basically you're introducing a new topic, as no-one has been discussing whether shareholders benefit from our financial system. Obviously they do.

So if shareholders, who happen to own the corporations that are paying the huge bonuses, are by and large profiting from the present system, I wonder what exactly is the cause of all outrage.

 

[Pangur Bán]

So if shareholders, who happen to own the corporations that are paying the huge bonuses, are by and large profiting from the present system, I wonder what exactly is the cause of all outrage.

Why is that puzzling?

 

[luiz]

Why is that puzzling?

Because the CEO's pay is nobody's business other than himself and the shareholders?

 

[Pangur Bán]

Because the CEO's pay is nobody's business other than himself and the shareholders?

Structural flaws that allow public companies to be milked by robber barons are very much everyone's business, especially when they damage the economy. Public companies are a critical part of our socio-economic system and shareholder protection obviously very much so (and we already have many laws "interfering" with them).

At the end of the day, these companies are based in democracies and if people get fed up with nonsense like this, then nonsense like this has a chance of ending ... no matter what legal or ideological bs, crapped out through cheerleading minions and admirers, makes such crookedness possible.

 

[JollyRoger]

I don't see a problem with "pay" increasing as stocks do. They founded the company and so get the most profit when it grows.

Most big time CEOs did not found anything and most of what they do own in shares, they picked up from stock grants and stock options.

Because the CEO's pay is nobody's business other than himself and the shareholders?

How about the bondholders, lenders, vendors, customers (not wanting to subsidize overpayment), government who issued the corporate charter, government that bailed out the corporation or is providing it subsiidies, taxpayers of that government, employees who have a stake in job security, communities hosting largee emplyment centers of the corporation who don't want it shut down in favor of gross CEO pay?

 

[luiz]

Structural flaws that allow public companies to be milked by robber barons are very much everyone's business, especially when they damage the economy. Public companies are a critical part of our socio-economic system and shareholder protection obviously very much so (and we already have many laws "interfering" with them).

At the end of the day, these companies are based in democracies and if people get fed up with nonsense like this, then nonsense like this has a chance of ending ... no matter what legal or ideological bs, crapped out through cheerleading minions and admirers, makes such crookedness possible.

But then we go back to the point that public companies have performed rather well in the last 100 years, in the US anyway (which is why shareholders get such a good premium on their investment). So those "robber barons" must be getting something right.

As I said earlier, the "conflict" between shareholders and management is a very real problem, one that has been the subject of extensive research since the 1920's, and we have developed all sorts of mechanisms to try to align the interests of the owners with those of managers. Is success complete? Of course not, and it never will be. But shareholders never had as much power as they do today; "shareholder supremacy" only got hold in the 1980's. The fact that, on average, shareholders continue to get an exception return on their investment means that the corporations are not being against their interests (mostly anyway).

You are making contradictory claims. On the one hand you accuse CEOs of being robber barons milking public companies dry, but on the other you agree that shareholders have gotten excellent returns on their investment during the last hundred years. How do those two positions reconcile?

 

[Cutlass]

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Because the CEO's pay is nobody's business other than himself and the shareholders?

It's not even the shareholders business. At least they have no say in it.

 

[Pangur Bán]

But then we go back to the point that public companies have performed rather well in the last 100 years, in the US anyway (which is why shareholders get such a good premium on their investment). So those "robber barons" must be getting something right.

As I said earlier, the "conflict" between shareholders and management is a very real problem, one that has been the subject of extensive research since the 1920's, and we have developed all sorts of mechanisms to try to align the interests of the owners with those of managers. Is success complete? Of course not, and it never will be. But shareholders never had as much power as they do today; "shareholder supremacy" only got hold in the 1980's. The fact that, on average, shareholders continue to get an exception return on their investment means that the corporations are not being against their interests (mostly anyway).

You are making contradictory claims. On the one hand you accuse CEOs of being robber barons milking public companies dry, but on the other you agree that shareholders have gotten excellent returns on their investment during the last hundred years. How do those two positions reconcile?

The "claims" are not in the least contradictory and you're just repeating the same irrelevant point.

And besides that, the fact that the biggest companies have got bigger really says more about the structure of the economy to which CEOs back then (who we're not even talking about) have little role. This is like saying the Roman Empire got so big because all of its legionary commanders were uniquely great (and ... for our fun ... therefore, deserve to pocket the wages of their soldiers.

 

[luiz]

The "claims" are not in the least contradictory and you're just repeating the same irrelevant point.

And besides that, the fact that the biggest companies have got bigger really says more about the structure of the economy to which CEOs back then (who we're not even talking about) have little role. This is like saying the Roman Empire got so big because all of its legionary commanders were uniquely great (and ... for our fun ... therefore, deserve to pocket the wages of their soldiers.

There is an obvious contradiction, yes. How can CEOs be robber barons milking public companies dry if public companies on average performed and perform pretty well, giving their investors a healthy return?

This does not mean that they are great superhumans at all, it only means that they are not robber barons milking their companies dry. Because the companies on average have done pretty well. I can't see how this is irrelavant or how the contradiction in your statements is not obvious.

 

[Pangur Bán]

There is an obvious contradiction, yes. How can CEOs be robber barons milking public companies dry if public companies on average performed and perform pretty well, giving their investors a healthy return?

This does not mean that they are great superhumans at all, it only means that they are not robber barons milking their companies dry. Because the companies on average have done pretty well. I can't see how this is irrelavant or how the contradiction in your statements is not obvious.

Luiz, I have respect for you as you know, but I don't think you're reading stuff here, either the comments or the articles. Some companies are doing well now, some have done well in the past, most are doing more badly now BUT the money going to CEOs of all of the above is rising now astronomically. The pay is absolutely not rising because companies are doing better; the two are not related and no-one would make a correspondence (which is not the same as saying that no pay-packages have some connection with company performance!). It's rising because CEOs are giving themselves ... sorry, being given ... better packets; whether or not their companies improve.

 

[Tani Coyote]

Most big time CEOs did not found anything and most of what they do own in shares, they picked up from stock grants and stock options.

Okay, fair enough, but the current system is one where you found it, run it, and if you want, you can sell it, whole or in part, to someone else.

Those CEOs are merely reaping the benefits of such a system.

 

[JollyRoger]

Okay, fair enough, but the current system is one where you found it, run it, and if you want, you can sell it, whole or in part, to someone else.

Those CEOs are merely reaping the benefits of such a system.

Sometimes you have to sell or be crushed.

 

[luiz]

Luiz, I have respect for you as you know, but I don't think you're reading stuff here, either the comments or the articles. Some companies are doing well now, some have done well in the past, most are doing more badly now BUT the money going to CEOs of all of the above is rising now astronomically. The pay is absolutely not rising because companies are doing better; the two are not related and no-one would make a correspondence (which is not the same as saying that no pay-packages have some connection with company performance!). It's rising because CEOs are giving themselves ... sorry, being given ... better packets; whether or not their companies improve.

OK, so you're making a point a about present CEOs, not CEOs in general. I misunderstood you, and indeed I can't argue against that with what we know now, I have to wait and see how listed companies will be doing in 5-10 years.

Back to the OP, I think some of the pay increases were indeed probably the result of exploitative tactics by upper management, against the best interests of shareholders, while in general the 40% increase is mostly a result of stocks doing a bit better (when compared to 2009 and 2010) and corporate profits surging (again, compared to the two previous years) mostly due to international operations. There are now strong indications that China is cooling down, and India already did. Combined with a collapsing European economy I think it's safe to expect a very weak 2012 and thus I would expect CEO pay to take a big hit. But we'll have to wait and see.

 

[Hygro]

profitability in business is in decline, and with it comes strange side effects, like an increased demand for top talent to make firms more profitable. This means that you can have recession correlating, or even causing increased top executive salaries.

Reiterating this. The moral outrage is appropriate but misdirected.

 

[Cutlass]

Reiterating this. The moral outrage is appropriate but misdirected.

That begins with the assumption, unproven, that there is any connection between greatest talent and CEO pay. Instead you have to consider the alternative scenario where CEOs and Board members have a cozy little clique going at the expense of the shareholders. And when you factor in how many of those top "talent" executives have been fired for incompetence or had their companies go bankrupt, the talent explanation looks thin at best.

 

[illram]

I always hear the "top talent" excuse. They were making that excuse before everything hit the fan a few years ago too. How did that "top talent" work out? Oh right.

If the market is making these compensation levels the market needs a correction. And,what Cutlass said.