Monday, October 14, 2013
How Corporate Boards Determine CEO Pay
We all know that CEO pay has been skyrocketing and we have been trying some things to contain the growth. This article explains why the things we have tried have only made things worse, and it describes the process that corporate boards use to set CEO pay. The process is the problem. It guarantees rapid increases in CEO pay. We could tinker with the process but corporate boards and CEO's would probably figure out ways to keep the game alive. Most members of corporate boards do not view CEO pay as a big problem and most institutional investors don't care what they get paid as long as they make their numbers. The basic problem is that we tend to exaggerate the impact that CEO's have on the long term viability of the firm. A bad CEO can help to sink the ship but there are not many CEO's who can right a firm in a rough business environment.