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Are CEOs paid too much? Large majority thinks so

Nearly 90 percent of respondents to this week’s RBJ Daily Report Snap Poll say CEOs of U.S. public companies are paid too much. And a growing number of readers—84 percent—think income inequality is a problem in the United States.
A new analysis by the Associated Press using data provided by Equilar, an executive compensation research firm, shows that the typical pay package for the head of a company in the Standard & Poor’s 500 was $9 million in 2010, up 24 percent and higher than before the financial crisis. By comparison, average pay for workers at those companies grew 3 percent in 2010, to roughly $40,500.
The highest-paid CEO in 2010 among locally based public companies was Robert Sands, president and CEO of Constellation Brands Inc., who earned $7.4 million, up 5.9 percent from the year before. (See the full list of highest-paid public company executives, starting on page 9.)
This week’s Snap Poll is one of several that have sought readers’ opinions on CEO pay. Compared with the most recent similar poll, slightly more people this time-88 percent-said CEO salaries are too high; 12 percent in the current poll said the salaries are about right. In May, 86 percent said CEO pay is too high. And in a similar poll in spring 2010, 82 percent of readers said CEOs’ pay generally is too high.
In this week’s poll, 84 percent said income inequality is a problem in our nation. Some 59 percent said income inequality is a major problem, while 25 percent said it is "somewhat of a problem." Sixteen percent said it is not a problem or not much of one.
The 84 percent total was up from October 2010, when 74 percent of respondents to a poll on the same topic said income inequality was a problem. And it was in sharp contrast to opinions in November 2007, when 51 percent of respondents said wealth inequality was not a problem.

Nearly 600 readers participated in this week’s poll, which was conducted July 11 and 12.

In general, how would you describe the compensation paid to CEOs of publicly held corporations in this country?
Too high: 88%
About right: 12%
Too low: 0%

Is income inequality a problem in the United States?
A major problem: 59%
Somewhat of a problem: 25%
Not much of a problem: 9%
Not a problem: 7%


Simply put: The rich get richer. The poor get poorer. The middle class gets? Wait—what middle class?
—Sandy Johnson, Delaney Educational

Ideally, CEO salary would be relatively low, and other compensation would be linked to market value. A big problem is that workers should also receive compensation through profit sharing, which has been eliminated in many firms. Let’s find a way to retain more workers, return more profit to the workers, and bring more jobs back to America.
—Dana K. Miller, Rochester City Council

Based on the figures above, the average CEO makes 222 times the average worker. This means that by the afternoon of Jan. 2 of each year, the average CEO has made what the average worker will make in an entire year. According to a CNN Money article from August 2007, CEO pay was 364 times the average worker’s after hitting a record high of 525 times in 2000. Going back to 1989 the figure was only 71 times and back in the early 1970s was only 25 times. What’s even more obscene is the “golden parachutes” some CEOs receive. When Robert Nardelli was ousted by the board of Home Depot in 2007 he received a severance package of $210 million. To put that into perspective, based on the $40,500 salary stated in the poll, the average worker would need to work for over 5,000 years to make that much. Are we heading back to the Middle Ages, to a time of feudalism when we are all serfs doing the bidding of the wealthy and powerful lords?
—David Belcher, LeRoy

This is a loaded question. It all depends on how much return the stockholders have received.
—Greg Palis

At the elevated levels of compensation that exist in the U.S. executive suites, the executives—especially the CEOs—are insulated from “real life” and the consequences of their decisions on the people whom they as leaders should be serving. Decisions to shift significant costs to their employees or cutting off retirees from their rightful benefits have little meaning to them because they have little sensitivity to the impact. A $3,000 cost to an Ursula Burns has far less impact than to most Xerox retirees, since she is compensated to the extent that she is. As a shareholder, I can’t see any benefit to paying a CEO 100 times or more than the average employee who does the work for the company. It is a needless cost of doing business.
—Dave Coriale, Webster

The question should be worded as to whether the pay is too high. The answer is yes. I don’t believe that a CEO should get more than 10 percent above any other employee of the company. However, I do believe that there should be additional incentives for the CEO based on the company performance under his/her term.
—Tim Wilson, Fairport

A talented CEO is like a talented sports figure. Public companies (and private ones, too) must pay the going rate for talent, as must sports teams, or the talent leaves and goes to the highest bidder. And privately held company owners can pay themselves whatever their company can afford. They took all the risks growing the company and are entitled to the payoff (if and when it comes). If a worker feels like they are underpaid, they have options, too. They can go elsewhere; they can take what they have learned and start their own business; or they can accept what they are being paid. Kind of reminds me of the Bible story in Matthew 20: 8-15: “8 when it was evening, the owner of the vineyard said to his manager, “Call the workers and give the pay starting with the last hired until the first.” 9 When those hired about five o’clock came, each received a full day’s pay. 10 And when those hired first came, they thought they would receive more. But each one also received the standard wage. 11 When they received it, they began to complain against the landowner, 12 saying, “These last fellows worked one hour, and you have made them equal to us who bore the hardship and burning heat of the day. 13 And the landowner replied to one of them, “Friend, I am not treating you unfairly. Didn’t you agree with me to work for the standard wage? 14 Take what is yours and go. I want to give this last man the same as I gave to you. 15 Am I not permitted to do what I want with what belongs to me? Or are you envious because I am generous?”
—George Thomas, Ogden

While not universally true, executive compensation is excessive and problematic in many public corporations because the corporate governance structure is fundamentally flawed. Many corporate boards are beholden to the CEO, who is sometimes also the chairman.
—Patricia C. Foster

It started with the CEOs, and now it has been transferred to the athletes who stage lockouts to get what they want. Both groups’ idea of an acceptable lifestyle is way beyond what it needs to be and what any normal working-class citizen has a chance to get to.
—Joseph Blank

Any person receiving a $9 million salary package appears to be too high to the average person. Movie stars, pro athletes and the top CEOs all make big bucks. In all these cases it is market-driven and we can’t control that. It is a free market, and to do anything different is wrong. A top CEO has many pressures to perform. and if they get the results, they should be compensated. If you are sitting on the board of a big corporation and selecting a CEO, would you not be willing to spend $9 million or more for someone you believe can earn the corporation billions in profit? Nobody needs that much money, and I only hope those who are talented enough to earn that kind of money are willing to give back to charities that can make a difference for those that are less fortunate.
—Mike Hogan, president, Information Packaging

We are becoming the “haves” and “have-nots” nation.
—Donna Slavin

The disparity between the pay of top management and the regular worker is too much. Hard work should be rewarded, but I believe the compensation packages that the top management gets are out of proportion to their individual effort.
—John Costello

The problem is not with just publicly held companies, but with CEOs of privately held ones, too. There should be some norm set, such as 20-1 or 30-1 of the lowest-paid worker on the payroll. Yes, there should be exceptions made if the CEO is new, etc., but not if she/he has been “in the chair for years.”
—Hal Gaffin, private management consultant

The performance of many corporations is not in line with the skyrocketing pay of their CEOs, while workers’ pay is relatively stagnant and shareowners don’t see growth in the value of company securities commensurate with the growth in CEO pay. With CEOs being paid bonuses to do whatever it takes to meet financial targets, are we developing a lack of growth in customer demand because the middle class is losing ground? Are CEO incentive targets one of the causes of the financial stagnation of our nation? Whatever happened to the concern for the well-being of our workers? With our Congress being dysfunctional while CEO pay is at levels people just can’t perceive the value of, while they sit on over a trillion dollars in cash and unemployment stubbornly stays high, slow anger builds and hope diminishes across the land. So there is a cost to high CEO pay far beyond the dollars their corporations enrich them with.
—Art Maurer, Penfield

Interesting that the more corporatist and interventionist our government becomes the greater the gap becomes. But at least we bailed out the banks, auto and insurance. Amazing that their compensation would go up when the government gave them trillions (with a T) of dollars to play with. And I’m sure that it was a coincidence that big companies that are tight with or are on the administration didn’t pay taxes (Jeffery Immelt, I’m looking in your general direction). But hey give me 900k pages of tax code and we can make anything happen right. Yeaaaah big government!
—Devon Michaels, Chili

Sure, they’re paid too much. But, the question is problematic in that the answer is really subjective to the individual company. Locally, we can look at Ms. Burns at Xerox. Paid too much? Maybe not, considering her excellent stewardship in managing the company to continuing profitability. Mr. Perez at Kodak, definitely too much considering the same criteria, profitability. And, let’s not forget that 100 years ago, there was the same discussion about the Carnegies, Rockefellers, Fords, etc. None of the workers at those companies condemned the owners for taking the lion’s share of profits. They were just damn glad to have the kind of jobs that were being offered. Is there inequality? Of course there is. There always has been and there always will be. If the average worker could run the company, they probably would. But they can’t. My real gripe is the outrageous compensation given (or taken) by the top management of NON-PROFITS. That’s the real crime.
—Rick Bradley

We were just made aware in a national poll that the top executive level received a 23%+ pay raise on average while the middle class worker only received 1/2%. Look at what took place in the top level of Xerox and Frontier, the top executives received raises way above the 23% level. It should be mentioned that what we the public may say doesn’t matter it is the stock holders that have the say for each company that is approving that type of raise. When you continue to have the differences between the executive level at 23%+ and 1/2% for the rest the inequality will become a major problem, especially when the county is at the edge of default.
—Ken Pamatat, Creative Images

Often in the recent past some CEOs got bonuses and raises regardless of his/her performance or the company’s performance. After all the people who grant the bonuses and raises are frequently fellow CEOs, why would they make life difficult for a fellow executive (you scratch my back and I’ll scratch yours). Congress acts in much the same way. This is corporate politics, and I doubt much will change. Look at Wall Street, there laughing all the way to the bank, many feel they’re responsible for the recent recession but nothing has changed.
—Pete Bonenfant, Wise Associates

They’re WAY overcompensated in many cases. For example, in 2010, the Exxon/Mobil CEO made $29 million including stocks. That’s just shy of $112,000 a DAY. Yes, a DAY. More than a half-million dollars a week. Eventually, his retirement parachute will be in the hundreds of millions of dollars. That’s obscene. The CEO of Wal-Mart’s compensation per hour was equal to or more than most of his employees make annually. Insane.
—Rich Calabrese Jr.

CEO pay is NOT market-driven, they sit on each other’s boards and set each others’ compensation. Labor produces the wealth. One only hires a worker in a free market if they can profit off their efforts. Only consumer demand can get us out of a recession. Riches for executives and record corporate profits can only turn the economy around if they are distributed to the working people responsible for the productivity. The first Jewish Supreme Court Justice (Louis Brandeis) said 70 or 80 years ago that we can have great wealth concentrated in the hands of a few, or we can have democracy, but we can’t have both.
—Jim Bertolone, president

The debate has been wrongly defined for the last 40 years, which leads to a misunderstanding of the issue. A person with means—a capitalist—invests his money in a venture and expects to receive a just return. There is nothing wrong with that. If the market forces suggest a higher rate of return, all the better. The CEO may or may not be the person of means. If the company is a publicly traded company, the person of means i.e. those providing the capital, are the shareholders. This is where the debate starts to develop some divide. Shareholders are a very passive bunch when things are going well, and in the realm of governance, will go along with “the board” in recommendations of executive pay. The executive compensation committees develop the executive pay scales. Again, there is nothing nefarious in this approach on the surface. The issue develops, as executives from one board are members on other companies’ executive compensation committees. The “good old boys” network starts to fashion a means to escalate the pay scale beyond what the true market forces would suggest is appropriate. The justification for the committees’ willingness to offer a higher than suggested pay package is that they want to attract or retain the best-qualified person for the job. Over time, this approach spirals out of control with shareholders seemingly oblivious to the widening gap, as long as the company is doing well. When the company is not doing well, the executives decide that the manufacturing cost structure (not executives pay) is the culprit. They lay off production workers in the hope that worker productivity will increase as the remaining workers try to mitigate themselves from being the next to go. If the workers are not successful in turning around the cost structure through greater productivity, the executives look to outsource the production to a lower wage workforce, usually outside the country. Management is applauded for taking bold corrective action. And so it goes. The talent pool is limited for both management and production workers. In the case of management, we offer higher wages to retain and attract the best, and in the production workers, we limit their pay or eliminate their jobs through outsourcing to obtain the same unit of work. The balance of fairness has become so warped over the ensuing 40 years, that it doesn’t even register in the executive compensation committees minds that pay scale is obscene and morally without merit. Of course, the real problem is the shareholders who continue to be passive participants, as long as their management is making them money. It will be near impossible to re-structure executive pay packages going forward since the scale is set, and one never goes back. One can only hope that shareholders will become part of the solution, become more involved with their companies and limit executive compensation to a more reasoned level.
—Tom Sargent

So, if we were to try to control executives’ compensation packages, WHO would do so? Stockholders? Boards of directors? Government? Executive compensation packages are perfect examples of our free market system at work. If we object to the amount of money paid to a particular executive, we are FREE, here in America, to take our business elsewhere.
—Tom Shea, Thomas P Shea Agency, Inc.

7/15/11 (c) 2011 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or e-mail rbj@rbj.net.

One comment

  1. The problem is not pay the problem is profit. There shouldn’t be any. There should not be any personal or equity ownership permitted. We need to support the Socialist agenda as it is offered in modern cultures.

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