CEO'S ARE PAID TOO MUCH

CEO's are paid too much

CEO's are paid too much

Introduction

The high pay of senior executives is problematic due to significant differences in how it is allocated. Too often, the remuneration of top managers is not related to their actual performance at the head of the company they hold the reins. Most people think of CEO as driven to work in a limo just to work for a few hours, then back in the limo field eighteen holes of golf with his golfing buddies, after a one-hour training on their company-paid club member only go to their houses to spend time with his wife and children.

I would hope to believe a fair compensation for the chief executive would be based on his or her results in regards to company performance but unfortunately this has not been the case in recent years. Remember Michael Ovitz, former CEO of Walt Disney, he served his duties for only fourteen months but was compensated $140 million in which Mr. Ovitz was sued by shareowners. According to an article posted on msn.com, a Delaware judge ruled in favor of the former president because “Disney's board didn't violate its responsibilities in awarding the huge severance package (Kay, 2008).” This paper will discuss why CEO's compensation is soaring and who is to blame, also how an investor can research what CEO's earn and finally I will offer recommendations on what should be done to control undeserving salaries.

Statement of Facts

Disappointment with excessive CEO pay has grown rapidly in recent years, and calls for pay cuts in the corner offices have never been stronger than in the wake of recent corporate scandals and subprime mortgage mess. According to The Corporate Library a governance research firm who tracks CEO's salaries, a chief executive of a Standard & Poor's 500 company made an average of $14.2 million in total compensation in 2007. Executive compensation came to a head in 2007, with severance packages specified to CEOs of companies in the center of the mortgage crisis. The International Monetary Fund estimates that the financial crisis triggered by the collapse of the mortgage market could total nearly $1 trillion and yet chief executive officers of the firms most responsible for causing the crisis collected hundreds of millions of dollars in pay last year which highlights the need for further reform to protect companies and their investors (Brush, 2005).

Another disturbing fact about chief executives compensation is they get paid no matter how good or bad the company performs. For example in a USAToday article from earlier this year, CEO Jeffery Mezger of KB Homes earned a $1 million base salary with a $6 million bonus awarded to him for the year. This was after the company lost $929 million in revenues while its stock price plummeted from $53 to high teens during the year. When the board of directors explained the bonus to shareholders they said “Mezger exceeded the objectives set for him, which included strengthening the company's balance sheet and upgrading ...