Executive Pay: One-Dollar Salary?

According to a recent survey conducted by the Institute For Policy Studies, the top 26 companies in the United States paid their CEO’s more than they paid taxes to the federal government in 2011. Each CEO received an average of $20.4 million in annual salary.

This represents a great contradiction in the US economy. On the one hand, the unemployment rate hovers around a high 8.2 per cent. The federal government is running a deficit of $1.3 trillion annually. On the other hand, big corporations are making large profits, paying very little taxes, receiving government bailouts totaling more than $1 trillion during the 2008 financial meltdown, and rewarding their CEOs with huge salaries. Some politicians are clamoring to further cut government spending because, according to their reasoning, the poor people have soaked up all the money in Medicare and Social Security. It looks like this is a democracy for the big guys. The regular guys who are the great majority have no say and shoulder most of the pains.

You cannot even talk about this huge inequality in America nowadays without being accused of fanning a class warfare that sets up the 99% against the 1%. Believe it or not, we are entering into a real prolonged class warfare because the 1% tries to have it all. They want even less government regulations to oversee their reckless business behavior as shown in the 2008 financial meltdown. The meat being dangled overhead is always jobs, jobs and jobs. Are they really the job creators? In fact, the jobs created in America mainly come from small businesses, not big corporations, most of which have shipped their factories overseas and laid off tens of thousands of workers every years.

Now, let’s focus on CEO pay. The reasoning given for the high pay is that we need to attract talents. That is only true for the regular employees who must work for a living. CEO’s do not belong to this category because they are paid an exceptional fortune. While higher wages attract talents, fortunes do not. They only breed greed and corruption. That is why Bill Gates and Warren Buffett are giving away their billion dollars. This high-wages-attract-talents thing is just a smoke screen used to deflect public criticism against extreme CEO pay.

Many CEOs have voluntarily accepted one-dollar salary. They include: Jobs (Apple), Brin, Page and Schmidt (Google), Zuckerberg (Facebook), Musk (Tesla Motors), Yang (Yahoo), Whitman (Hewlett-Packard), Mackey (Whole Food Market), Bloomberg (Mayor of New York) and Schwarzenegger (Governor of California). Has this act caused them to be poor? How badly have their companies or organizations performed? Why is one dollar able to attract talents and dedication?

The truth is that heading a business or an organization is a passion. People are happy to do it with no money involved. The most important thing is the satisfaction and fulfillment derived. After all, the executives at the top have become rich during the process of their rise. They have already amassed a great fortune through other means. They don’t need more to corrupt them. They need happiness and fulfillment that money can’t buy.

Then why do CEO’s continue to receive ridiculously high pay? The reason is not about talents. It’s about corporate governance. The CEO chairs the board of directors as the governing body of the company. He or she appoints or recommends individuals to be admitted to the board. The board approves salary and other compensations for the CEO. Should someone be appointed to the board, he/she would owe the CEO a favor that can only be repaid by approving a huge compensation every year. However, that person will never be appointed to the board unless being a major shareholder or representing one. That means only major shareholders are responsible for high CEO pay. Do you see the symbiosis there? While the board approves high pay, the CEO legally and regularly provides insider information about the company to the board members who then trade stocks at extra high or low prices. In simple words, I scratch your back and you scratch mine. Occasionally, a conflict arises between the CEO and the board. The result is that the CEO is ousted by a majority of the board members. The replacement is always another person who knows how to play the same old game of scratching backs. This is corporate governance in a nutshell.

Company performance does not depend solely on the CEO. It depends on the dedication and talents of the many people working under the executive’s leadership. Can the CEO make a big difference? Yes, only if he or she chooses to provide exceptional leadership. Steve Jobs is probably the best example where he ran Apple as if it was his life. A CEO should rise and sink with the company like the captain of a ship or airplane. There should be no golden parachute provided because it is a great job that deserves total commitment. If the CEO thinks that it’s not fair, he or she should not take up the job in the first place. There are plenty of dedicated people with talents and passions who are happy to do it, and are willing to accept a symbolic one-dollar salary.

August 2012

This entry was posted in Business/Investment, Economics/Politics, Inspiration. Bookmark the permalink.

One Response to Executive Pay: One-Dollar Salary?

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