Paying CEOs Like Rock Stars

(This article was written by Rick Dacri and was originally published in the York County Coast Star on June 26, 2014)

payCEO pay is out of control…isn’t it? The Wall Street Journal published their 2013 Annual CEO Compensation Survey of the 300 largest U.S. publically traded companies and found that CEO pay rose “moderately.” That sounds good. CEO pay increased by only 5.5%, while ordinary employees’ pay rose 1.3%, according to the U.S. Department of Labor. Regular folks pay was less than “moderate,” I guess.

So how much do CEO’s make? The big money maker was Oracle’s CEO Larry Ellison who earned $76.9 million, followed by Leslie Moonves of CBS at $65.4 million. The Journal noted that several CEOs, whose companies were not listed because they were not big enough to make the list, earned much more. Cheniere Energy CEO Charif Souki was paid $141.6 million on sales of $267 million. In other words, he was paid more than half of what the company brought in. That doesn’t seem fair.

What about here in Maine? As you might expect, CEO pay lags behind the rest of the nation. But please, don’t feel bad. The top pay went to WEX CEO who earned a little over $4.7 million followed by Idexx Lab’s CEO at nearly $4 million.

When you figure that the median pay for a full-time worker earned in the first quarter of 2014 was $796 a week or $41,392, you can understand why some might find these CEO’s salaries a tad high. The Journal noted that the pay of these executives didn’t necessarily correlate to the results of their company. In other words, performance wasn’t a factor in their pay. As one anonymous online commentator noted, “It is impossible in this current economic climate to achieve results that could remotely justify these salaries.”

So what’s reasonable?This year twenty-one major league baseball players will earn in excess of $20 million a year for playing a game over an eight-month period. That doesn’t seem fair when you consider school teachers take knocks for a nine-month school year. By the way, Red Sox designated hitter David Ortiz only earns $15.5 million. That doesn’t seem fair. Shouldn’t he be getting much more?

Forbes reports that the highest paid celebrity last year was Madonna. She earned a cool $125 million followed by Steven Spielberg at $100 million. Haven’t heard anyone complaining about that. Justin Bieber brought in $58 million—now I hear some moaning.

The most powerful person in the world, the President of the United States earns $400,000. You’d think the individual who has his finger on the button should at least earn a million, wouldn’t you?

Governor Paul LePage earns $70,000 a year and again, we in Maine have the distinction of having the lowest paid governor—below Arkansas no less. Depending on whether you’re a D or an R will determine how you now feel about this. But regardless, $70K seems way low. Incidentally, the Governor’s cabinet appointees earn more than him and that doesn’t seem fair either. The boss shouldn’t be earning less than the direct reports. Except, we felt Big Papi’s pay was fair and he makes a whole lot more than his boss, manager John Farrell.

So what’s fair and reasonable with pay? Outside of some government positions where a legislative body sets pay, compensation is usually a factor of skills, education, years of experience, and market conditions. The value of the job (what a company is willing to pay) is often then determined by the pay practices for comparable (similar) jobs at comparable companies. Armed with this data, employers set pay ranges and pay their employees within them. Employers want to ensure they pay well enough to attract and retain good workers for the job.

But what about the fairness of CEO pay versus everyone else? To begin, it is important to understand that not all CEOs command these huge dollars. We are generally only talking about the biggest companies in America. Board’s of Directors, in recruiting a CEO, determine pay based on the individual’s current pay, what it will take to get him or her to join the firm, market conditions, the candidate’s negotiation acumen, and often the desire of some boards to be able to boast that they have recruited the highest paid and therefore “the best” CEO. Few boards at this level consider how these wages compare with the rank in file. Some companies, like Whole Foods, cap CEO pay as a multiple of the average worker’s pay. But that’s hard to do and it is rare.

Whether it’s fair to pay a CEO, celebrity or ball player an outrageous salary while others labor to scrape a living, that’s an issue we as a society must determine. The marketplace has generally proven the best tool in sorting these matters. Government is not. It’s complicated and companies struggle with this. As the gap widens, there will be more and more pressure for change. After all, unless you’re the one making the big bucks, few wage decisions seem to be fair—but how we pay people hits at the heart of who we are as a people.

What do you think is fair pay for CEOs? I’d like to hear your thoughts.


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