As part of the fallout from the Great Recession, people took a closer look at the salaries of top executives versus regular workers, and it became a major social and political issue. Executive pay is again making news headlines.
People were abuzz at the news last week that the CEO of Gravity Payments was planning to boost all employee salaries to a minimum of $70,000 over the next three years (that’s 120 employees), while he himself would take a temporary pay cut from $1 million to $70,000.
And playing as a backdrop to that story was news of an email that presidential candidate Hillary Clinton sent to supporters in which she said American families were still facing financial hardship at a time when the average CEO makes about 300 times what the average worker makes.
The Seattle Times said it’s an economic issue that has captured national attention: the disparity between the soaring pay of chief executives and that of their employees.
On the other side are organizations such as the Ayn Rand Institute, which says executive pay is decided by shareholders. In 2009, it wrote: “Far from relying on nefarious backroom deals, successful CEOs earn their pay by creating vast amounts of wealth. Jack Welch, for instance, helped raise GE’s market value from $14 billion to $410 billion. Steve Jobs’s leadership famously turned a struggling Apple into an industry leader. Only a handful of people develop the virtues – vision, drive, knowledge, and ability – to successfully run a multibillion-dollar company. They deserve extraordinary compensation for their extraordinary achievements.”
But are the Boards of public companies compensating executives based on performance?
Case in point, eBay. This year the eBay board praised the CEO and his corporate leadership team and said it compensated them accordingly. Under current leadership, the company experienced a security breach, stagnating growth of its Marketplaces businesses, and a failure to fend off Carl Icahn in 2014.
The board also looks at other factors when making its decision – including the compensation of executives at rival companies. This year, the issue went beyond salary, bonuses, and perks – eBay’s board took some unusual measures by providing top executives with Golden Handshakes in addition to the more routine Golden Parachutes.
How should company boards determine executive performance? It’s an issue that gets a lot of attention from politicians, the media, and workers. But if the Ayn Rand Institute is correct, company shareholders are happy with the status quo.
The AuctionBytes Blog tackled the issue of how much money it would take to make online sellers happy – feel free to share your thoughts about executive compensation there as well.
Comment on the AuctionBytes Blog.