CEO compensation is a natural consequence of power-law distributions, and efforts to tamper it down unnaturally will have numerous unintended, negative consequences. The reality is, like leading professional sports players and Hollywood entertainers, when there are only 250 firms in the Fortune 250 and those firms will see multi-billion dollar variances between great leadership and poor, what’s an extra $25 million risk premium in the big picture?
The same goes for Hollywood actors. Why pay George Clooney $5 million for a film and put the whole return at risk when you can pay Will Smith $10 million and guarantee a great box office?
Having moved up the past year to working with C-title people in a Fortune 250, I too realized how much they earn their keep. The pay is more of a competitive dynamic, attracting the most capable people to the larger firms. But the market is very limited on how many people can tolerate the demands. The risk taking is significant – decisions made on very limited information under significant stress and little time. The consequence is absolute: you’re out of a job. Senior VPs and above in our firm rarely last more than two years.
If Congress wants to focus on unethical compensation activities, then start with cleaning their own house. Investigate and terminate Senators and Representatives that are actively seeking other offices and neglecting their duties. An attendance policy should be instituted for Congressmen just as the rest of us face in our jobs. Books written by them should also fall under the same inventions and work-for-hire rules the rest of us face, with the ownership of those books being the citizens through their government.
