How to Pay CEOs What They’re Worth

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The easiest way to solve this problem is to eliminate stock options altogether and pay CEOs a base salary and annual cash bonus. When extra performance bonuses are warranted, shareholders would vote yes or no to them. At the end of the day, it's real easy to figure out how to pay a CEO when salaries are public.
The problem is current non-performance-related pay is capped at $1 million. Any pay over that isn't deductible.
CEOs, like everyone else. should pay-to-play. If you believe in your company, borrow against your home and cash flow to buy stock on the open market.
It's pretty simple.
P.S. For those who argue you'll make it harder to find the best talent, I'm pretty sure if you ask Vice President #17 to be CEO for $2 million, he/she would figure out a way to do the job properly. We put way too much faith in the top dog. As if he/she is the only one who can do the job. It's ludicrous.

Will Ashworth 5:09PM October 06, 2009

I am not aware of the business environment in US. It is likely that my idea may not hold. Nevertheless I would like to state that all companies should fix a ratio of maximum to minimum wages. This can be between 20 & 50(depending upon the technology level of the company). Thus if the low salary in organisation is USD 3000 per month then the maximum salary can be 150000. This is a fancy salary even for the best brains. For earning beyond this, they need to become enterpreneur.
Once upon a time there was a rule in India that, nobody can get salary higher than the president of India. This rule is worth studying now.

pankaj shah 11:41AM September 30, 2009

Why would we want to overly compensate an individual who ran his company so badly he brought it to the point of disaster or destroys a company out of greed, for profit and leave thousands of employees without a job, pension and no benefits. What he deserves is to be charged as a traitor and jail time or at least to be tarred and feathered and run out of the country. CEOs who send American jobs overseas out of greed, just to make an extra million are a plague on America. We have experienced millions of people who have lost not only their jobs but their homes and left them reeling from the pain and in shock. And, what do they do take American jobs and manufacturing to Asia, South America and Eastern Europe and continue their inhuman practice of slave-labor. For that what they deserve is to be jailed and never allowed to ran a company again.

Ann Geary of IL 2:50PM September 28, 2009

Since 2008 began, the Institute for Policy Studies recently reported, the 20 U.S. banks that have received the most bailout dollars have laid off 160,000 workers. The 100 top execs at these 20 banks, in 2008 alone, collected a combined $791.5 million in personal compensation.
Our tax dollars, in short, are helping grow the gap between our richest and everyone else. That need not be. If we leveraged the power of the public purse — as we already do against gender and racial inequity — our tax dollars could be helping us narrow, not expand, the economic gaps that divide us.
Under existing law, firms that discriminate against women and minorities in their employment practices cannot gain government contracts. As a society, we've decided that we don't want our tax dollars subsidizing gender or racial inequality. So why should we let our tax dollars subsidize economic inequality — by giving government contracts and tax breaks to firms that compensate their top execs at levels that dwarf the pay that goes to average workers?
Rep. Jan Schakowsky from Illinois has introduced legislation, the Patriot Corporations Act, that would give a preference in the government contract bidding process to companies that pay their top execs less than 100 times what they compensate their lowest-paid workers.
That standard suggests a principle worth rallying around: No tax dollars, in any way, shape, or form, for any companies or banks that pay their executives unconscionably more than what their workers receive.

TooMuchEditor of MD 10:58AM September 23, 2009

We need a greater degree of vigilance on the part of journalists, business writers, scholars and politicians to come down hard on the Jack Welch’s of the world who destroy companies for profit and cause thousands to loose their jobs. Our celebrity CEO’s should be the “good guys” who create jobs, sustain communities, and protect the environment.
We need to look at the methods CEO’s use to enrich themselves and their stockholders from an ecological perspective. We must understand the impact outsourcing, closing factories, and agri-business is having on American communities large and small. For example, no CEO has been held accountable for the destruction of Flint, Michigan that has gone from a flourishing city of 80,000 automobile workers to a destroyed town of poverty, drugs, and helplessness, with 1/3 of its homes abandoned. In addition, we must identify and stop CEO’s who threaten and exploit the working poor in Asia, America, and Eastern Europe.

czander of NY 4:27PM September 22, 2009

The amount most CEO's receive when leaving is redickulass. In some cases they are paid more then they are worth as a regulator salary. One million would be plenty when they retire. Any thing over five would be way too much.

Tengallon Hat of TX 4:07PM September 22, 2009

There were no nine-digit pay packages for CEOs of anything until conservatives in government unwisely eliminated the high income tax brackets on astronomical incomes in the 1980s. Ever since that happened, a few high rollers have been completely robbing individual investors AND employees of the firms they play with. Just as bad, if not worse, smaller taxpayers have found themselves bailing out the consequences of horrible management decisions THAT NEVER WOULD HAVE BEEN MADE BY CEOs BEING PAID MERE FRACTIONS OF THE LOOT THAT HAS BEEN DANGLED IN RECENT YEARS AS MAGNETS FOR MISBEHAVIOR BY THE TOP FEW.
Why does no one in media seem to "get" this cause/effect problem.

Muser of NM 1:33PM September 22, 2009

Rick-
Great column. I do think that there is a significant amount of shareholder apathy when it comes to holding management accountable at firms that fail to deliver performance. That being said, in addition to institutional money managers having short investment time-horizons, the individual investor is also guilty of the "I want it now" approach to investing. It was just 10 years ago when the topic de jour at family gatherings and neighborhood events was "hey I've got this great stock tip". People failed actually to any research on the firm they were investing in, let alone evaluate management performance.
Individual investors have the attention span of a gnat and a knack for buying high and selling low. That combined with the fact that the cumbersome process for voting proxies means that most people just throw the document out or delete the link. If an investor can set up their online brokerage account so that it allows them to customize just about every aspect of investing, why not create a way for them to create their own proxy voting policy embedded into their account? They could choose to come up with their own, or follow recommendations of proxy advisory firm or other groups.
Just a thought.

Spock of MA 1:10PM September 22, 2009