Politics Relationships

Executive Compensation. Is it Fair?

That depends. To determine whether Executive Compensation is fair or not ask the following questions.  Did that executive think up and make decisions that resulted in an extraordinary corporate decision? And did that decision save the company or steer it in a direction that resulted in increased measurable growth and success?

If so, it is fair to argue that person deserves a part of that success directly attributable to them.

executive compensationThe usual answer by the way, is NO, they are not worth what they are paid. Other superior executives might well have created comparable results for far less.

But some CEOs are truly great leaders and very valuable.  So the question becomes how should their executive compensation be computed?

Is a movie star, such as Daniel Craig really worth his supposed recent contract offer of $150 million to do two James Bond  movies? First,  the offer appears to be just a rumor- but what IF?  Or what about some other A list star?

The studio or independent executives in charge of the two productions figure out just how much they believe they will make on the films from all sources- yes, even besides the film itself- action figures, clothing, whatever.  Based upon those carefully calculated amounts they come up with a maximum production cost.

Will that star draw enough box office to make the project profitable?  

Remember that the theater often takes half of the box office receipts. Distribution and advertising eat away huge amounts too.

What is the downside of picking a different star to do the films. In this case are we all tired of so many different actors playing James Bond?

Would we all go to see the film if it were a different actor playing James Bond

How about a professional athlete? Will people be willing to pay increases ticket cost to go to games  and will that and additional revenue from television exceed the total cost analysis on the team to give all concerned the profit they seek? Will it make the franchise more valuable – adding in the cost of a new super player? If so by what amount? What about if it propels them to a championship?

There is a difference here with corporate CEOs. It is harder to measure what should be their performance executive compensation.  Even more so  when their company is in the doldrums sometimes through no fault of their own. It is also executive compensation graphharder to fire a CEO when shareholders and the public think they should go. That decision is usually made by the board members who often have vested interests themselves.

What are they really worth? Even if they are paid 1000 times their average workers pay, SOME are worth it.

Personally,  I favor a reset on CEO salaries, athletes salaries, movie star salaries, all tied to profitability.

Most hedge-fund managers are worthless. Their risk adjusted returns simply are not there. Their hits don’t exceed the laws of probability- that means they are sometimes lucky not talented.

What about YOUR salary? Most of us think we are worth more than we are paid. A lot of us are wrong. But it really gnaws at me to realize I just got a pay cut so that senior executives can claim increased corporate profits and get bonus compensation.

My suggestion? Figure out what you ARE truly worth. Find a few alternatives and see if some competitor will pay you that amount.

Find a place to go FIRST. THEN give your boss the right of first refusal and if they balk, walk. Go to the competitor.  

So what are your thoughts on executive compensation?

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