Back in 2008 when the economy took a devastating blow from executive financial recklessness associated with housing loans, the spotlight honed in on exec pay on a yearly basis and whether those salaries were realistic or just disparity, continuing to increase, dividing top executives further from the rest of us. It seems that scenario is not so far-fetched if you delve further into what current exec-pay metrics look like in Top Exec Salaries in 2010.
Are there significant reasons for exec pay to be in the stratosphere, and does the compensation fit the title and responsibility? Obviously those with top salaries would definitely and quickly expound on the enormous stress and complexity of their jobs. In reality the warranting of current compensation and exit parachutes would take most of the incentive to be stressed, or to perform, out of the equation. After all, if the job doesn’t work out, a lucrative contract would have to be honored sending CEO’s to the country club, and to one of their three or four homes to contemplate the future. That is not realistic for the majority. See (Steven Pearlstein: Why they’re winning on the CEO pay)
While some executives actually earn their salary the hard way, through performance, innovation, and market growth, others tend to cover mistakes and mishaps by reducing expenses and headcount to cover their tracks. Those latter actions do have results, but are they the right results? Not necessarily, it depends on the economic climate and whether a downturn is related to external and uncontrollable factors, or the missteps of the executive.
Since public companies are not all owned or controlled by one person or family, but many stockholders; it remains up to the board of directors to decide how executives are performing, and whether their actions are up-to-par. The problem remains that most boards are appointed by the CEO, the very executive they are to advise and hold accountable, and usually garner good salaries and company equity to do so. So if the boardroom is stacked, how does real objectivity exist; it doesn’t.
Then it is not surprising that executive compensation has continued to rise through the years and relationships with of CEO’s and their board’s represent a fairly cozy alliance. This clearly contributes to a growing sentiment of income disparity which has continued to rise within the U.S. between top and bottom earners since the 1980’s. The President of the United States makes $200,000 per year plus benefits and perks, which is clearly the largest governing entity in the U.S. Granted he makes a good retirement upon leaving office, but the stress and responsibility can be seen physically when he leaves. In essence, he makes and deserves every penny. See (Studies cite CEO pay as significant cause of wealth inequity)
Reducing the disparity of top and bottom earners should be a Nobel goal for all wanting to stay far away from socialism which results when societal inequities run rampant.