How did we get into the problem of insane pay for U.S. corporation leaders? The problem basically originated from the title above. Every board of directors wants to pat themselves on the back for selecting that exception person who will lead their company to outperform all the others. They need to do that so that they can somehow rationalize their board being paid thousands of dollars per hour for their time. So the statement is made:
Our CEO is exceptional so we must guarantee him a paycheck in the top 20% of all CEOs.
On the surface this is a rather innocuous statement that is bound to be true for some. But the problem is that almost every board now makes this statement and backs it up with a iron-clad golden parachute to match. So when 100% of the CEOs are to be paid in the top 20% of all CEOs it becomes an impossibility to actually occur. The only thing that can happen is that CEO pay goes through the stratosphere seeking a never-ending top 20%.
The impossibility that all CEOs can be in the top 20% seems rather easy for most people to understand so why can’t the typical board of directors figure it out? Again there is a again simple answer and that is most CEOs are actually on the board of directors for several other companies. So, when the above pledge is made they also guarantee an ever dramatic increase in their own pay. This is the typical “I’ll scratch your back if you scratch mine”.
There is one simple solution to this dilemma and that is for the shareholders to put an end to it. That is where more greed comes into the equation. Everyone who buys stock in a company want the cost per share to increase dramatically so they can rake in some big profits. In order to do that they must think that the guy in charge is the best in the business. Or at least in the top 20%. You get the idea.
The only way to stop this ever escalating CEO pay is for the stockholders to cause it to end. It will not be an easy matters as the CEO and the board of directors will probably fight tooth and nail for their wealth. But it can and actually does happen once in a while. So, the next time you start complaining about CEO pay remember that you the stockholder are allowing it to happen. Even if you only have one share in a company you have power to cease this ridiculous practice.
But I’m just a simple guy so what do I know.