Who should make more? Jeff Immelt or Dr. Phil?

James Glassman takes critics of CEO compensation to task:

Our new global high-tech economy, companies are less likely to promote insiders who may be chummy with the board and instead pick CEOs outside not just the firm but even the sector - take Alan Mulally, who came to Ford from Boeing.

These talented generalists are scarce and can have a huge effect on profits. Sure, they command high pay. Too high? The Yankees' Alex Rodriguez earned $29 million from June 2005 to this summer. Jeff Immelt of General Electric makes less than Dr. Phil does. If a good CEO can boost profits by $200 million, he's easily worth $10 million, or more.

Certainly, some CEOs, like some ballplayers, make more than they deserve. Angry shareholders have a remedy - dump the stock. The bigger problem, as we show in The American, the magazine I edit, is that publicly traded companies - because of pressure from politicians, the media and unions - could be underpaying CEOs. The best and brightest managers are migrating to private-equity firms, hedge funds and privately owned businesses out of the spotlight.

Posted on Tuesday, December 26 2006 | Permalink

I am struck by something I read in the 1934 edition of Security Analysis, by Benjamin Graham and David Dodd.
This book comments about the “then current” uproar about the scandalous levels of executive compensation.
It goes to show you that this has always been in the headlines and probably always will be.  Part of the issue is what defines “too much pay”, who sets themselves up as judge and jury to decide? How do they stay current, to keep up with changing times?
People will always disagree, if they didn’t then we would be a society of automatons.
One other interesting statement that the above mentioned book makes is that the issue of executive compensation does not amount to much in terms of the bottom line of corporate society. If you took the total compensation of all the questionable executives you would have less than the total cost of inventory shrinkage. (Product breakage, loss, product obsolence and just plain petty theft.)
However, more interesting is the point you make about a good ceo generating additional profits being compensated incrementally. That would probably have a larger effect on the bottom line of society.
Business planning needs to be followed, that involves the rather mundane task of reviewing the plans and seeing if we are on track. Not very glamourous/exciting for the board of directors, but that accountability needs to be executed. (Note I say executed, not instituted. Executive accountability is already their responsibility.)
I also feel that the plan is necessary to take our eyes off the quarterly results uniquely and re-focus them on the long term goals of the firm.
Using GE as an example, too many quarterly result watchers want to dump NBC/Universal et all. I feel they have a place in the larger overall GE Plan and should simply be reviewed as to where they are in the plan.
Just some thoughts from a lonely soul working on the day of rest between Christmas and New Years.
Happy holidays everyone…

Posted by  on  12/28  at  06:35 AM
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