In Monday's blog I advised that it is a good use of one's time to pay attention to trends - the least risky alternative to placing bets on forecasts and outright predictions. I wrote that without having sat down and gone through the Sunday papers (a car drives by at 4am and faithfully heaves some 5 pounds of print onto my driveway on Sundays).
The San Jose Mercury News published its annual What the Boss Makes survey of CEO pay among Bay Area firms, accompanied by the opinion of business writer Chris O'Brien - whom I've come to regard as one of the best business writers this side of the Mississippi. Suffice it to say that, by any yardstick, CEO's make a lot. (If you're like me, it's always fun to scroll down through the names of companies you know, and run your finger over to the salary, bonus and stock options columns. Wow!)
Now, Chris likes to have fun when he writes, and he customarily awards laurels along with the barbs (unlike the WSJ's survey which tends to be spartan with its opinions .... until this year).
Then, I happened upon an article in the New York Times by Gretchen Morgenson - another writer whom I recommend who happily lifts up stones and peeks at what is underneath them in her Fair Game column. This week's is titled Paychecks As Big as Tajikistan. As of this writing it's only the 8th most emailed article (mortgage woes and selling big diamonds in China beat it out) but I encourage you to read it. It's an easy and eye-opening read.
It references a report in The Analyst's Accounting Observer ($7500 annual subscription if you're interested) published by R. G. Associates that goes into intricate detail in assessing executive pay among S&P 500 companies. The editors gave the article and interesting title - "S&P 500 Executive Pay: Bigger Than ... Whatever You Think It Is."
Here are a few highlights that caught my attention:
I'm not blogging to suggest that executives should be pilloried, or that there is a conspiracy of Board members to reward the few at the expense of shareholders. Far from it. I've worked along with CEOs who, in my experience, earned their keep. It's a 7x24 job. And, in the past 20 years, Wall Street and shareholders have turned it into "final exams every 90 days!" Expectations are high, unrelenting, and seemingly unstoppable. If bubbles didn't exist it's as if the market expects executives to create them - but without the fallout. Hell, who wouldn't want top dollar to deliver against that kind of expectation.
But I am blogging to state that I'm seeing a trend regarding executive pay. I'm coming across too many articles and OpEd pieces to ignore it. The trend I'm seeing is eerily similar to that in government pensions: the party's over, let the hangover set in. The economic environment is not kind to those at the right end of the bell curve, and I don't see it letting up.
But my question: will we see a corresponding re-leveling of shareholder - and Wall street - expectations to create sanity on both sides of the street? I hope so, but it's not a prediction I'm comfortable making;-)
The San Jose Mercury News published its annual What the Boss Makes survey of CEO pay among Bay Area firms, accompanied by the opinion of business writer Chris O'Brien - whom I've come to regard as one of the best business writers this side of the Mississippi. Suffice it to say that, by any yardstick, CEO's make a lot. (If you're like me, it's always fun to scroll down through the names of companies you know, and run your finger over to the salary, bonus and stock options columns. Wow!)
Now, Chris likes to have fun when he writes, and he customarily awards laurels along with the barbs (unlike the WSJ's survey which tends to be spartan with its opinions .... until this year).
Then, I happened upon an article in the New York Times by Gretchen Morgenson - another writer whom I recommend who happily lifts up stones and peeks at what is underneath them in her Fair Game column. This week's is titled Paychecks As Big as Tajikistan. As of this writing it's only the 8th most emailed article (mortgage woes and selling big diamonds in China beat it out) but I encourage you to read it. It's an easy and eye-opening read.
It references a report in The Analyst's Accounting Observer ($7500 annual subscription if you're interested) published by R. G. Associates that goes into intricate detail in assessing executive pay among S&P 500 companies. The editors gave the article and interesting title - "S&P 500 Executive Pay: Bigger Than ... Whatever You Think It Is."
Here are a few highlights that caught my attention:
- Among the 483 S&P 500 firms surveyed, 2010 executive pay increased yr/yr by 13.9% to $14.3B - just shy of the GDP of Tajikistan (pop. 7million).
- One-third of these firms paid more to their execs in cash compensation than they paid in audit fees (to protect shareholders) and, in 32 companies, executive pay exceeded what they remitted in income taxes. In 24 companies this amounted to 2%+ of net income from operations.
- From 2008 - 2010, 179 of the companies awarded raises to their executives even though shareholder value declined. Eleven companies paid total compensation amounting to 1% or more of their market capitalization.
I'm not blogging to suggest that executives should be pilloried, or that there is a conspiracy of Board members to reward the few at the expense of shareholders. Far from it. I've worked along with CEOs who, in my experience, earned their keep. It's a 7x24 job. And, in the past 20 years, Wall Street and shareholders have turned it into "final exams every 90 days!" Expectations are high, unrelenting, and seemingly unstoppable. If bubbles didn't exist it's as if the market expects executives to create them - but without the fallout. Hell, who wouldn't want top dollar to deliver against that kind of expectation.
But I am blogging to state that I'm seeing a trend regarding executive pay. I'm coming across too many articles and OpEd pieces to ignore it. The trend I'm seeing is eerily similar to that in government pensions: the party's over, let the hangover set in. The economic environment is not kind to those at the right end of the bell curve, and I don't see it letting up.
But my question: will we see a corresponding re-leveling of shareholder - and Wall street - expectations to create sanity on both sides of the street? I hope so, but it's not a prediction I'm comfortable making;-)
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