Conventional wisdom asserts that chief executives of major companies are overpaid, outrageously so.
This is one time when the prevailing opinion is correct.
A recent article in The Economist stated that CEO pay is determined by supply and demand, and adequate pay must be forthcoming to recruit the suitable person. Widespread acceptance of that opinion does not justify it. Needless to say, many companies are complicit in this idea.
That magazine review stated that, contrary to general opinion, bosses’ pay does not always go up, that poor performance may result in being fired and the executives’ pay relative to the average wage earner is becoming more realistic.
While those arguments may have some validity, all but forgotten is the disgrace of executives’ pay in this era of fragile employment gains. Yet the head of a major auto parts supplier claimed that he was entitled to his $20 million “salary” because he started the company. However, it should be noted that this is a public company, and shareholders should have more than a nominal say in that pay package.
The blatant injustice of CEO pay was a principal focus of the Occupy movement last year. The backlash against extravagances have a way of being corrected. In the 20th century one should note that the privileged few in Europe entailed so much resentment that the entire system came down in a tremendous upheaval. At one point the public will rebel and a new reality will set in. Then chief executives’ pay will be curbed in favour of better wages for all employees and thus a more productive and happier workforce.
One should be asking nowadays what those overpaid bosses do to warrant their financial compensation of say, tens of thousands of dollars per day. Much of an executive’s routine consists of conferences and public relations exercises. Some say the problem lies with the incentives that have been granted, such as stock options that are tied to stock prices, not inevitably linked to executives’ performance.
Given the above, what remedial steps should be forthcoming? Government regulation would mean that many firms would outsource jobs. Some reformers want boards to hold annual “say on pay” votes for representatives who have routinely approved executive pay.
Hence, the composition of boards should change to include union representation, as is the case in Germany. Too, shareholders should receive advance notice of such meetings with both pro and con arguments contained therein.
Clearly, at present we need major reforms before more onerous restrictions are imposed. A lot of noise by activists is just beginning.