Investigate CEO Pay? Investigate Others, Too!
If politicians worry that CEOs make too much, they should also investigate movie stars and Al Gore — not to mention senators who campaign for higher office while feeding at the public trough.
April 19, 2008 - 12:00 am
Certain members of Congress — some of them presidential candidates — think it’s a great idea to investigate how much CEOs of major corporations earn. This is an effort to make Americans think they’re doing something — not to mention an effort to keep class envy alive. Barack Obama is pushing legislation that would allow investors to approve a CEO’s pay based on their satisfaction of stock performance, while John McCain wants to “shine a light” on CEO pay packages.
When Congress decides to get involved in the private sector, be prepared for unexpected consequences. They mean well, of course, but invariably something goes wrong. Guess who ends up paying for the mistake? Hint: not Congress.
Envy and jealousy, those two ever-present human emotions, are at play, and “greedy” corporate fat cats are once again in the spotlight. But when it comes down to it, how many average Americans know what CEO pay is based on? We all imagine the CEO living in his posh mansion and being driven in his limo to his office where he spends maybe a couple of hours a day “working.” Then it’s off to the golf course or the yacht club, where he socializes with his peers, waited on hand and foot by the hoi polloi who bow and scrape for paltry tips.
Do those of us who envy from afar realize how much these people go through to get to the top of the pay scale?
One of my brothers-in-law is not a CEO, but he’s darn close — he’s a CIO for a major American corporation. But he didn’t start out that way. He had an average job as an electrical engineer, making decent money but not scads of it. In a way, he was “discovered,” being in the right place at the right time with the right skills — and he was on the track to corporate stardom. In the process he had to earn two master’s degrees (including his MBA) at night while working days; moved his family across the country four times; and at his last job ended up traveling 80 percent of the time all over the world and not always to nice locations — in some places he actually needed armed body guards. Fun, huh? He travels with his current job too, but only about 20 percent of the time and only in North America — one of the reasons he accepted their offer.
When you get to this level, you often work late and always have to be available via Blackberry, cell phone, and computer at home in case a crisis crops up. Your time is never your own unless you are on official vacation. You have to make big decisions that affect the entire corporation — and if they’re the wrong ones, it’s your head on the block. You are paid handsomely, yes, but your home life suffers. Believe me; he earns every penny of his salary. And he’s a nice guy to boot who enjoys fishing and hunting, and he’s a lifetime member of the NRA. (By the way, he drives himself to work in his own car. He only gets a limo when he goes to the airport.)
But in case my brother-in-law’s story isn’t enough to convince you, let’s look to someone with a little more clout than I have: Thomas Sowell, one of this nation’s most respected economists, who explains why anyone would want to pay a CEO such exorbitant amounts of money:
One popular explanation is that executive salaries are set by boards of directors who are spending the stockholders’ money and do not care that they are overpaying a CEO, who may be the one responsible for putting them on the board of directors in the first place.
It makes a neat picture and may even be true in some cases. What deals a body blow to this theory, however, is that CEO compensation is even higher in corporations owned by a few giant investment firms, as distinguished from corporations owned by thousands of individual stockholders.
In other words, it is precisely where people are spending their own money and have financial expertise that they bid highest for CEOs. It is precisely where people most fully understand the difference that the right CEO can make in a corporation’s profitability that they are willing to bid what it takes to get the executive they want.
If people who are capable of being outstanding executives were a dime a dozen, nobody would pay eleven cents a dozen for them.
When CEOs don’t make the grade, they’re dropped like hot rocks. Yes, many of them receive “golden parachutes.” But it’s likely that those parachutes are packed when the CEO signs on, not in a mad rush to get him out the door.
More from Sowell:
Given the high degree of specialization in a modern economy, demanding that everything “justify itself before the bar of reason” means demanding that people who know what they are doing must be subject to the veto of people who don’t have a clue about the decisions that they are second-guessing.
It means demanding that ignorance override knowledge.
The ignorant are not just some separate group of people. As Will Rogers said, everybody is ignorant, but just about different things.
Should computer experts tell brain surgeons how to do their job? Or horse trainers tell either of them what to do?
One of the reasons why central planning sounds so good, but has failed so badly that even socialist and communist governments finally abandoned the idea by the end of the 20th century, is that nobody knows enough to second guess everybody else.
This is why I believe Economics 101 should be a required class in either high school or college. Even so, unfortunately, this kind of logic is usually thrown overboard when people are concerned about the economy and their own pathetic standing in it. Personal responsibility to manage your own finances in a sensible manner will always take a back seat to being part of a mob with pitchforks and torches, looking for the nearest scapegoat.
This being an election year, don’t expect Congress and presidential candidates to listen to people like Thomas Sowell, who know what they’re talking about. They must do something to look as though they’re appeasing the masses. More bread and circuses! And so, in that light, I’d like to suggest a few other areas of salary inequity they may want to look into. No, it’s none of their business how much these people make, but neither is CEO pay. And it would make some really good press.
- Movie stars, singers, sports stars, and other entertainment celebrities. Think about it: every time you go to a movie, concert, or sports event, the people entertaining you are making millions of dollars, which often translates into higher prices for you at the box office or music store. And, as is often the case — with movies, anyway — you don’t always feel as though you’ve gotten your money’s worth. Why should you shell out more for increasingly mediocre talent? It’s an outrage! Additionally, think about all of the starving actors and performers out there who don’t make as much as “big stars” like George Clooney, Madonna, and Tom Cruise. It’s just not fair that they’re making the big bucks and living lives of luxury while the unknowns are waiting tables in between auditions just to make ends meet. Talent, luck, and supply and demand? Fugheddaboutit! If we’re going to level the playing field for everyone else, let’s not leave pampered celebrities out of the loop. And don’t forget the heads of the entertainment companies.
- CEOs who head “politically correct” companies. Why isn’t Congress looking into how much the CEO of Starbucks is making? Because Starbucks is a company beloved by its patrons for giving them that Friends feeling when they buy an overpriced coffee masquerading as something else and sit down in comfy chairs to peruse the New York Times or surf the free WiFi. And Starbucks is at least ostensibly committed to the right causes, like fair trade. Forget the fact that the CEO probably makes more in a month than an average “barista” — that’s a sophisticated name for a coffee server — will during his entire career with Starbucks, right? But if we’re going to look into CEO pay, then Starbucks and all the other companies that make us “feel good” when consuming their products should be fair game too.
- Al Gore. It’s amazing that Al Gore has managed to parlay his concern for the environment into a vast personal fortune. In fact, his fortune allows him to comfortably heat his massive home and zigzag across the globe on private jets, all while telling the rest of us to turn down the thermostat and bicycle 20 miles to work in an effort to reduce our so-called “carbon footprints.” It’d be interesting for Congress to learn just how his “carbon offset” scheme works, especially seeing as how he buys the offsets from a company for which he just happens to not only serve as chairman, but also partly owns. When it comes to Mother Earth, shouldn’t we all be making economic sacrifices?
- Finally, Congress should take a look at the salaries of officeholders who run for higher office. Nothing gets my goat more than public officeholders who spend more time campaigning for a better position than doing what they were originally elected for. Wanna be president? Fine. But you should be made to either wait until your current Senate or House term expires or be forced to resign your post. Why should the taxpayers foot the bill for these yahoos who, rather than doing the work of the American people, are looking for more prestige and power for themselves? One of my senators was among the not-so-lucky contenders for the presidential nomination. He missed nearly 40 percent of the votes that occurred during his time on the campaign trail — and when he threw in the towel, headed back to his nice office in Washington and (I’m sure) will run for Senate again when his term is up. How many of you have bosses who would pay you to skip work to look for a better position elsewhere?
It’s nice to dream, isn’t it?