I’m pretty sure that low salaries are a dysfunction of democracies rather than high salaries being a dysfunction of companies. In particular, it’s not the case with every company that a couple of people hold enormous shares. And aside from that, even when there is clear evidence that “the majority” gets directly involved in CEO compensation, it doesn’t seem that the salaries go down all that much.
Or looking at it differently, if the high salaries were the consequence of an undue concentration of power, we would expect that when one CEO leaves, and a different one who was not previously affiliated with the power holders is installed, the salary of the new one would be much much lower. However, I think this is rarely the case.
I don’t think your second point really is one, seeing as a CEO can not be installed without being affiliated with the power holders. Can you back up your first point?
I don’t think your second point really is one, seeing as a CEO can not be installed without being affiliated with the power holders.
Why not? Some CEOs (especially for smaller companies, I think) are found via specialised recruiting companies, which I’d say is pretty unaffiliated. And in any case, it’s not clear to me how you think the affiliation would be increasing pay. Do you imagine potential CEO candidates hold an auction in which they offer kickbacks to major shareholders/powerholders from their pay or something? Because I haven’t heard of that ever happening, and I’m having trouble imagining what more plausible scenario you have in mind. (Obviously there are cases where major shareholders also serve as CEOs/whatever, but if you’re claiming that every person in such position with high pay is a major power holder shares/board-wise, I’d like to see evidence for it, since I find that extremely unlikely.)
Can you back up your first point?
If you mean about new executives receiving pay comparable to old ones, I dunno, it’s hard. I think I’d have to search company-by-company and even then it would be hard to determine what’s happening. For example, I looked up Barclay’s, which switched Bob Diamond for Antony Jenkins last year. Diamond had a base salary of £1.3mil. Jenkins has a base salary of £1.1mil. However, Diamond got a lot of non-salary money (much of which he gave up due to scandal), and it’s not clear how Jenkins’ compensation compares to that. Also, it’s not clear how much the reduction (if there is any) is the result of public outrage (or ongoing economic difficulties).
If you mean about high salaries probably being appropriate, I can back that up on a theoretical level. If you assume a CEO has a high level of influence over a huge company, then it’s straightforward that there is going to be intense competition for the best individuals. Even someone who can improve profits by 0.1% would be worth extra millions of dollars to a multi-billion dollar company.
I’m pretty sure that low salaries are a dysfunction of democracies rather than high salaries being a dysfunction of companies. In particular, it’s not the case with every company that a couple of people hold enormous shares. And aside from that, even when there is clear evidence that “the majority” gets directly involved in CEO compensation, it doesn’t seem that the salaries go down all that much.
Or looking at it differently, if the high salaries were the consequence of an undue concentration of power, we would expect that when one CEO leaves, and a different one who was not previously affiliated with the power holders is installed, the salary of the new one would be much much lower. However, I think this is rarely the case.
I don’t think your second point really is one, seeing as a CEO can not be installed without being affiliated with the power holders. Can you back up your first point?
Why not? Some CEOs (especially for smaller companies, I think) are found via specialised recruiting companies, which I’d say is pretty unaffiliated. And in any case, it’s not clear to me how you think the affiliation would be increasing pay. Do you imagine potential CEO candidates hold an auction in which they offer kickbacks to major shareholders/powerholders from their pay or something? Because I haven’t heard of that ever happening, and I’m having trouble imagining what more plausible scenario you have in mind. (Obviously there are cases where major shareholders also serve as CEOs/whatever, but if you’re claiming that every person in such position with high pay is a major power holder shares/board-wise, I’d like to see evidence for it, since I find that extremely unlikely.)
If you mean about new executives receiving pay comparable to old ones, I dunno, it’s hard. I think I’d have to search company-by-company and even then it would be hard to determine what’s happening. For example, I looked up Barclay’s, which switched Bob Diamond for Antony Jenkins last year. Diamond had a base salary of £1.3mil. Jenkins has a base salary of £1.1mil. However, Diamond got a lot of non-salary money (much of which he gave up due to scandal), and it’s not clear how Jenkins’ compensation compares to that. Also, it’s not clear how much the reduction (if there is any) is the result of public outrage (or ongoing economic difficulties).
If you mean about high salaries probably being appropriate, I can back that up on a theoretical level. If you assume a CEO has a high level of influence over a huge company, then it’s straightforward that there is going to be intense competition for the best individuals. Even someone who can improve profits by 0.1% would be worth extra millions of dollars to a multi-billion dollar company.
Related things I found while looking around: “highly concentrated ownership in listed companies in New Zealand is a significant contributor to [a] poor pay-for-performance relation”, “institutional ownership concentration is positively related to the pay-for-performance sensitivity of executive compensation and negatively related to the level of compensation, even after controlling for firm size, industry, investment opportunities, and performance”, “results indicate that power is more concentrated than ownership”. (Not that I read much more than abstracts.)
Interesting. I will have to read through that later.