We all know there are exorbitant salaries out there. Basketball star Shaquille O'Neal just got a huge contract for playing a game! But the difference between Shaq and many of the outrageously paid CEOs is that he actually helps his team win.
Even when companies lose big, CEOs win big. Every contract should be a "win-or-go-home." Losing should feel like losing to the leader.
There is so much executive talent that isn't even tapped. So much passion that would be applied for reasonable amounts. So many ready to make a difference without putting such a dent in stockholders' profits. If a CEO ends up with a Shaq-like salary, make him/her earn it first. If they do not generate wins for the team, a CEO should get what the rest of us get when we don't deliver: nothing.
Owner of an organization
I feel this is linked to the increasingly short span of CEOs at the helm and the continuous push for immediate results, at times quarter to quarter. This obviously implies that CEOs need to be remunerated at even higher amounts to offset the burnout risk. Secondly, most organizations prefer to hire CEOs from outside instead of internal talent. Most of these companies are at the cusp of major strategic transformation, so they feel an external hire with fresh ideas and thinking will break the mold, leapfrog the organization to the next level, and lead them through the paradigm shift. Also, in most cases, an external CEO is probably the "easiest, politically correct" option, especially in midsize to large maturing or mature organizations where there would typically be two or three close contenders for the top job. Given the high stakes involved and the attendant risks, the compensation naturally has to be pegged higher for external hires who would typically come from a "better, more successful" organization than the incumbent organization.
Consulting head, banking practice of a leading IT company
From my perspective, nothing about CEO compensation seems to be "efficient."
Simple things that customers have to deal with are not getting answered, like half an hour on phone trees before reaching someone. Customers can't even reach people in those positions who could do something about the problem.
CEOs shouldn't get a dime if they can't fix these and many other problems like it that customers deal with daily. Just as it took a U.S. State Senator to get some action on the county, state, and city roads issues near me, one should have access to the CEO who can make things right.
It grieves me that the only way to even find out the name of a CEO is often to look in the area on the web site for Investor Relations rather than Customer Service ... as if the company is only interested in serving their investors.
CEO compensation should go to fixing problems, not to multiple houses, boats, and airplanes for an individual.
Information Consultant/Owner
Trescott Research
I think these high executive compensation packages are also necessitated by the reduced "lifespan" of chief executives. Unlike the past, CEOs in today's operating context are expected to deliver results quarter by quarter and hedge the risk of uncertainty in their contract through a high degree of compensation. One way to balance this could be to give them some time to settle into their role and deliver value over a period of time. Part of the excessive compensation is a trade-off with the longevity of contract.
In terms of global trends, CEOs will continue to get paid extremely well because of the nature of their role and the challenges they face. The advantage of an internal CEO is that you don't have to pay a premium over and above the benchmarks for your own people and their compensation can be managed internally. However, in instances where an external CEO is required to kick-start the organization, you would need to pay the premium. One way could be a definite linkage between corporate results and executive compensation so that the package is tied up with the corporate results. Boards should lead the way in designing this linkage.
Manager, Human Resources
Citibank
The assessment of "real" contributions by CEOs, at times, may be arbitrary: There may or may not be a logical nexus between compensation and performance. What ought to be relevant is the cutting-edge work of the CEO, which would be demonstrably reflected in the overall performance and growth of the company.
Director
Lawtocon International Business Law Academy, India
My thought: The CEO market for mega organizations operates in a synthetic universe—one that differs largely by scale alone. We ought to adjust our comparison metrics accordingly from those employed successfully in smaller organizations. We see the same breakdown of comparisons when we attempted to use Newtonian physics to explain quantum mechanics. Thankfully, advances in physics helped open our minds to more careful thinking.
In the global market for executive talent, CEO compensation can get rationalized only if the investor profile in huge corporations changes toward a more distributed profile. Boards are often dominated by a restricted number of players. The debate on outsider CEOs bears little relevance here. Insider CEOs may also grant themselves lavish compensation with the complicity of boards. Nothing can substitute for the role played by a diverse, alert, and ethical board. It is high time that CEO salaries were openly structured around the concept of Economic Value Added (EVA). Decisions on CEO compensation should be built on the art of collective decision making, the economics of risk and leadership, and the mathematics of performance accounting.
System Design Engineer - VNGN
Wipro Technologies
Compensation accountability appears to be inversely proportional to the size of the organization. This is my second small company in the healthcare sector, and the salary, bonus, and option payout have all been directly or indirectly through the market—the result of my performance as measured by company progress. The recent payoff of Carly Fiorina at HP appears to have been not performance-driven, but a result of the market perception of the scarcity of CEOs for large companies and their resulting pay packages.
My experience—after being in a large company in middle management positions for eighteen years before small company "C" positions for the last eight years—is that small companies do not provide cover, momentum, or place to hide. Large organizations provide cover augmented by momentum that requires a longer period of time to see true performance.
The price of a CEO for any company seems to run on a scale based on size. The ultimate problem with that is the large failure effect—even failure at a large company leads to huge-scale wealth for a CEO, hence HP's payoff of a $42 million package. Large companies may want to look for talent among CEOs in smaller companies who are used to accountability.
CEO
IntelliDOT
In my view, a revamp of the market system will be required to control the many governance issues including transparency and agency issues. CEO compensation is only the tip of the iceberg.
CEO compensation has received some attention in the media lately. In boom times it is a non-issue because shareholders are reaping rewards from companies doing well in the market in the form of increased share prices and dividends. It is only when the economy has dampened and the shareholders are not satisfied that executive performance and compensation become a "hot" issue. Therein lies the problem.
Corporate governance and the balancing act of shareholder interests and sustainability of the company are relegated to the functioning of efficient markets. America has already seen the results of such failure. Regulation has already tried stepping in with no avail. SOX, 404, and other such acts can police corporate America, but cannot replace effective management that is required through the participation of shareholders. And unless we can transform the way the market works to bring shareholders into a more active, participative role, CEO compensation along with other governance challenges such as agency issues will continue to plague companies.
Should we go down the regulatory path or let the markets undertake a corrective measure in due time? I believe neither one will be effective because compensation regulation will do irreparable damage to the talent market and rewards system. Markets are not effective right now due to the way governance mechanisms are skewed in favor of institutional investors. Only the introduction of increased participative retail and individual shareholders will help to establish prudent governance in firms. Now the questions are (1) How can we change this landscape to make the corporate mechanics more real and transparent? and (2) How do we make the quarterly results of the firms more real to investors, rather than a constant cry for increased outlook at any cost?
Industry Executive
EDS
I don't know if we have an efficient market from the perspective of companies seeking to pay CEOs, but I'm puzzled as to a slightly different perspective.
There are only 500 chances in the world to be a Fortune 500 CEO. There are probably thousands, if not tens of thousands of people qualified to take those jobs. Of those, thousands would probably be inspired enough to work for a modest salary (say, $60,000) or even pay for the privilege of being able to head up an organization like that. After all, the power and influence alone is a pretty heady reward.
In startups, we choose executives for their passion, commitment, and vision. Most executives come on board knowing they're not likely to make a nine-figure income from their job. They do it for the intangibles.
Why do we even spend our time debating whether a Fortune 500 CEO is "worth it"? Why, instead, don't we seek to hire people who are so motivated to want the job that they don't NEED a nine-figure inducement to consider showing up for work?
CEO
CEO compensation should be based on a formula to streamline the compensation effect on all company employees regardless of whether the CEO is from within or outside the organization. The formula should be based on the following factor: percentage of profit over productivity improvement.
This percentage should be calculated through the assessment of existing market share, market trends, risk associated to the product of the organization, and the purpose of the organization vs. achieved market share after a specified period, future innovation in product line by competitors, achievement ratio in redefining the organization's purpose of existence, and response lead time to upcoming events and issues of concern to the clients of the organization.
Aims Controller
PIA
There is no single answer to the CEO compensation question. The boards of directors must have at least some understanding of their requirements before they make a decision on whether to hire an outsider. If they are in a maturing industry that requires a "shakeout" in order to get the company back on track, it might be worth bringing in a "hired gun."
The bigger question is: "How did things get so bad?" If the boards of directors were doing their job all along, the need for a shakeout would never arise. Maybe the problem is more related to boards as a governing body that acted irresponsibly. Those boards that recognize the need for change early can use the existing talent to make it happen, and save both money and careers.
President
BWH Consulting