Even Most Directors Think CEO Pay is Too High

Posted by: Jena McGregor on September 30, 2009

File this one under “ironic research studies” of the recession.

A majority of directors—the people who actually make decisions about CEO pay packages—believe CEO pay packages need trimming. In a significant shift from its 2006 survey, fifty-nine percent of respondents to a University of Southern California Marshall School of Business survey released earlier this month said there should be decreases in executive benefits and perquisites. Another 52% said retirement packages were too high, while a full 73% felt severance pay should be reduced. In 2006, just a minority of directors agreed with these statements (23%, 25% and 32%, respectively).

At the same time, the directors don’t want government to do much about it. Nearly half (49%) said President Obama’s initiative to impose advisory shareholder votes on executive compensation would hurt the effectiveness of pay plans, while 71% said government-imposed limits on executive pay would “greatly decrease” the effectiveness of pay plans.

But if that’s what they believe, what do they plan to do about it? When the people in charge of setting executive pay don’t want the government to step in, but aren’t making the changes themselves needed to reduce outrageous pay packages, what exactly are they proposing? The survey, which queried 140 directors in August at U.S. corporations, shows an extraordinary lack of accountability. If shareholders can’t count on the people in charge to make the changes, where should they turn instead?

What’s lost in the directors’ answers, too, is whether such high packages are needed to be “effective.” Executives are leaders, they are managers, and they hold significant responsibility. But despite what their compensation might indicate, they do not single-handedly determine the fates of their companies’ progress.

Of course, while many directors think executive pay is a problem elsewhere, an overwhelming majority say it’s not at their own firms. Eighty-six percent said their own CEO’s compensation plan was “effective” or “very effective.” It’s someone else’s problem, then. But whose?

Reader Comments

Squeezebox

September 30, 2009 12:36 PM

Harvard and Yale alumni kiss each other's butts as usual while the rest of us are told to go eat cake! Enough already! Why is the CEO worth more than the entrepreneur who founded the company????

JahLove63

September 30, 2009 12:45 PM

Well duh! Having researched and tracked for many years the enormous pay disparity between the top CEO's and the rest of the people, I've seen executive pay creep up unfairly, unreasonably, and far out-paced percentage wise to everyone else's pay consistently since the late 70's early 80's. I've also found in my experience working in large corporations where these top paying executives work making their enormous salaries & bonuses, their effectiveness wanes, delegating all their work to those lower than them...essentially the workers doing all the hard work and the boss man is getting all the money AND recognition. The disparity is sickening and I came to the conclusion a long time ago, that our dysfunctional capitalistic system is nothing more than an legally elaborate indentured slavery system. I, for one, do my best to shop the smaller locally owned stores. Sure I might pay a little more, but I know my money is usually going to a family-owned business as opposed to greedy, self-indulgent corporations' shareholders and CEO's who neither work for their $$ nor deserve it! Corporate America can go down with the rest of the empire, I'm rooting for the small business man myself!

SAID IT

September 30, 2009 3:04 PM

Ultimate hypocrisy! They all cater to one another for their own personal benefit.

said it

September 30, 2009 3:07 PM

Ultimate hypocrisy!!!

Kim

September 30, 2009 9:32 PM

We must strive towards greater income equality. To achieve this in the United States we must first address CEO pay. Their pay is ridiculously high, but they are few in number, so once their pay is redistributed it will only add a few dollars each year to the rest of our incomes.

Next we must address the income of federal and state employees. Us average folks receive about $12,000/year social security retirement at age 67. The typical government employee receives both their retirement medical benefit and about $60,000/year pension at age 52 (15 years earlier than the rest of us). It's wrong, it's just plain wrong!

Rich

October 5, 2009 3:15 PM

Jena, you are asking the right questions. Maybe one day we'll get the right answers.

Rich

October 5, 2009 3:18 PM

Jena, you are asking the right questions. Maybe one day we'll get the right answers.

Ian

October 8, 2009 10:53 AM

I was just wondering; why is it that the justification for CEO salaries is based on the market, where as the justification for the lowered wages of the workers is based on affordability? You know the arguement:

CEO - "We need to pay CEO's these wages to get the best talent out of the market."

The rest - "We must lay off personel or forego wages increases to control costs."

What about the cost of the CEO. The directors doing the work would be more than happy to be CEO, and for far less a cost.

Just Curious

Edie Kingston

October 13, 2009 11:41 AM

Grahall’s editorial board reviewed this article and created a blog on our website with some points of view and observations pertaining to that subject. We thought you might like to read our comments and have included the link to our website and to that blog in particular.

http://www.grahall.com/expert-perspective/%e2%80%9cyou-first-my-dear-gaston%e2%80%9d/

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jagruti

January 23, 2010 8:10 AM

business boards net connecting communicating business executions and financial orders

jagruti

January 23, 2010 8:10 AM

business boards net connecting communicating business executions and financial orders

jagruti

January 23, 2010 8:10 AM

business boards net connecting communicating business executions and financial orders

Golf

March 24, 2010 6:56 PM

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