razz
10-28-11, 8:09pm
i keep hearing that CEOs must have great pay to get and keep the best people. I wondered if anyone had done the research to see if these socalled "great People" really earned those wages or was it more of a spiralling network of keeping up with other CEOs in other businesses.
This Energy bulletin article is really worth reading for challenging the current myths of free market thinking.
http://www.energybulletin.net/stories/2011-10-28/pay-top-each-according-results-social-contribution-or-systemic-privilege
Some quotes:
Perhaps the most immediately provocative of these three is the one that is most narrowly focused: the High Pay Commission’s discussion paper “What are we Paying for?”. The report itself was researched and written by Income Data Services, a subsidiary of Thomson Reuters. In some forty pages of close analysis, it examines whether the senior executives of large UK corporations are worth their pay; and it does so by asking a simple question: to what extent do the enormous executive pay increases that have occurred during the last ten years reflect corporate performance? Company results as reflected in pre-tax profit, earnings per share, year-end share price and market capitalisation provide the benchmarks.
Overall the answer to the question is very little. Using data for the FTSE 350 largest companies, the report shows that between 2000 and 2010, total cash remuneration for executives increased by 133% while Long term Incentive Plan (LTIP) awards - by which executives acquire shares for meeting certain targets - shot up by no less than 254%. These kinds of increases would be questionable even if the companies had prospered and the targets been met. Trouble is they haven’t. Pre-tax profits increased during the period by only 50%, and earnings per share by 73%, while year-end share prices plummeted by 71%.
If such figures cause a narrowing of the eyes, worse is to follow. Chapter seven of the report focuses on the extent to which companies featured in the FTSE 350 in the year 2000 survived as members of this elite group in 2010. It turns out that fewer than half (124) remained on the list throughout the period and these represent only 16% of the total number that appeared on the list at some time. Staggeringly, while top executives of “survivor” companies received average LTIP increases of around 490%, the leaders of “non-survivors” enjoyed LTIP increases of - wait for it - 1,476%. “Taking all the evidence together”, the reports concludes, “our analysis….suggests that a highly rewarding long-term incentive plan is no guarantee of a company’s long-term membership at the table of top-listed companies”...
“US (and UK) managers are over-priced”. Today, they are paid around ten times more than their predecessors of the 1960s even though the latter ran companies that by every available measure were more successful. They also receive 300-400 times more than the average worker, up from 30 - 40 times in the 1960s. Neoliberals would argue that in a free market people get paid according to their worth and that the market will punish them for failure, but Chang shows that nowadays executive compensation goes only one way - due north - regardless of company results
This Energy bulletin article is really worth reading for challenging the current myths of free market thinking.
http://www.energybulletin.net/stories/2011-10-28/pay-top-each-according-results-social-contribution-or-systemic-privilege
Some quotes:
Perhaps the most immediately provocative of these three is the one that is most narrowly focused: the High Pay Commission’s discussion paper “What are we Paying for?”. The report itself was researched and written by Income Data Services, a subsidiary of Thomson Reuters. In some forty pages of close analysis, it examines whether the senior executives of large UK corporations are worth their pay; and it does so by asking a simple question: to what extent do the enormous executive pay increases that have occurred during the last ten years reflect corporate performance? Company results as reflected in pre-tax profit, earnings per share, year-end share price and market capitalisation provide the benchmarks.
Overall the answer to the question is very little. Using data for the FTSE 350 largest companies, the report shows that between 2000 and 2010, total cash remuneration for executives increased by 133% while Long term Incentive Plan (LTIP) awards - by which executives acquire shares for meeting certain targets - shot up by no less than 254%. These kinds of increases would be questionable even if the companies had prospered and the targets been met. Trouble is they haven’t. Pre-tax profits increased during the period by only 50%, and earnings per share by 73%, while year-end share prices plummeted by 71%.
If such figures cause a narrowing of the eyes, worse is to follow. Chapter seven of the report focuses on the extent to which companies featured in the FTSE 350 in the year 2000 survived as members of this elite group in 2010. It turns out that fewer than half (124) remained on the list throughout the period and these represent only 16% of the total number that appeared on the list at some time. Staggeringly, while top executives of “survivor” companies received average LTIP increases of around 490%, the leaders of “non-survivors” enjoyed LTIP increases of - wait for it - 1,476%. “Taking all the evidence together”, the reports concludes, “our analysis….suggests that a highly rewarding long-term incentive plan is no guarantee of a company’s long-term membership at the table of top-listed companies”...
“US (and UK) managers are over-priced”. Today, they are paid around ten times more than their predecessors of the 1960s even though the latter ran companies that by every available measure were more successful. They also receive 300-400 times more than the average worker, up from 30 - 40 times in the 1960s. Neoliberals would argue that in a free market people get paid according to their worth and that the market will punish them for failure, but Chang shows that nowadays executive compensation goes only one way - due north - regardless of company results