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Yeah, yeah, CEOs, you are all Gods and indispensable to the success of your company. You’ve made that argument year after year, no matter how often your companies failed — and the transcribers of press releases (formerly known as “journalists”) and the people you buy to do your bidding (we call them “politicians”) have bought this malarkey for so long that it’s allowed you to rob the treasuries of your companies. Problem is, a lot of the reasons lathered with bullshit about why you get paid obscene amounts of money are just plain false.

Gretchen Morgenson reports that the “market” argument to pay CEOs higher pay to keep them from fleeing to another company is false:

   But a study released last week pretty much drives a stake through that old “pay ’em or lose ’em” line — what you might call the brain-drain defense. It also debunks the idea that companies must keep up with the Joneses by constantly comparing their executives’ compensation with that of similar companies.

    This peer-group benchmark — how executive pay at one company stacks up against pay at another — is a big driver of ever-rising compensation. Boards say it helps them set pay based on what the market will bear.

    Well, maybe not.

And:

   

Mr. Elson and Mr. Ferrere conclude, contrary to the prevailing line, that chief executives can’t readily transfer their skills from one company to another. In other words, the argument that C.E.O.’s will leave if they aren’t compensated well, perhaps even lavishly, is bogus. Using the peer-group benchmark only pushes pay up and up.[emphasis added]
You can check out the whole study she refers to. But, she fails to point out another key point. When I wrote my book “The Audacity of Greed” back in 2009, I had the good fortune to talk with Graef “Bud” Crystal who was once one of the country’s premier compensation consultants—the guy who would be hired by CEOs to come up with compensation packages. He told me back then:

   

“In 1970, one CEO hired me and said, ‘we don’t have a bonus plan and do we need one?’” recalls Crystal. “I did the study and I went back to the CEO and said ‘yes you do need a bonus plan. But we have a problem area. You are making $150,000-a year and the problem is that the $150,000 is equal to the salary and the bonus to what your competitors are paying so we have to cut your pay to $100,000-a-year and then we can put in a bonus.’” Crystal laughs. “It was like a scene from The Exorcist where ice formed on the windows…he started arguing about the findings and he finally said ‘let me say this to you this way: who do you think is paying your bills anyway?’ I replied, ‘If I recall correctly the checks were drawn on the corporate account, not your personal account so the shareholders are paying me, not you.’ The meeting ended quite quickly.
The point is the whole game is fixed. The CEO stacks his board with cronies, pays them $20,000-per-meeting board fees and, then, makes sure his cronies approve pay packages — the real money is in the pensions and deferred pay. It’s a scam

Originally posted to Tasini on Sun Sep 23, 2012 at 06:51 AM PDT.

Also republished by In Support of Labor and Unions.

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