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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Spekulatius who wrote (8136)1/16/2003 12:08:42 AM
From: GraceZRead Replies (1) of 306849
 
In a lot of cases, the correlation between executive pay and corporate performance is nonexistent and it certainly is no coincidence that executive pay has risen much stronger during the last decade then earnings of any other profession.

I don't disagree with you that there were some instances where boards did little overseeing of the shareholders interests but a big part of the reason executive compensation rose so fast in the nineties was the use of options. This started after Congress passed a law limiting the deductibility of executive pay to a million. This kind of thing always occurs when the government tries to limit compensation or try to tell the market what the price should be.

The steep increase in compensation came from the options side, the options were frequently negotiated up front and boards tried to match or had to match what other firms of similar size gave their officers otherwise they risked losing the executive to another firm. This goes back to what I originally said, that jobs have a market value. Why would a CEO, CFO or COO stay at a particular firm if a much bigger compensation package was offered somewhere else? Would you take a job somewhere for half the rate of your peers?

Some tech firms pay their execs very little in salary, it's almost all options and during the bull market this had the effect of giving these guys enormous gains but this is done specifically to tie their compensation to the performance of the company. In companies where the options were widely distributed to lower level employees like at Walmart, Intel, MSFT and CSCO, it also had the effect of making millionaires out of ordinary salaried employees. Everyone forgets this when they think about all those people who lost their pensions at Enron. People kept all their money in the company stock because so many before them got rich doing exactly that.
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