An idea occurred to me this morning concerning CEO wages. An odd subject to dwell on, but one that is timely and currently important. Since the start of the great recession the media has been reporting on the multimillion dollar “Golden Parachutes” that are given to outgoing CEOs of spiraling companies. The ongoing #Occupy protests point to them as signs of corruption on Wall Street. This little blurb on Daring Fireball about Research in Motion, the makers of the Blackberry, references some past speculation on why Co-CEOs Mike Lazaridis and Jim Balsillie still have jobs. And finally, the obituaries of Steve Jobs brought up his $1 yearly salary (plus stock options).
All this made me think that companies would be much better served by their CEOs if they were paid these high-end, 1% salaries, primarily in company stock. Their worth would be directly tied to the company they run. Their retirement packages (and golden parachutes) are predetermined and paid in not a dollar amount, but a set amount of stock. They run the company into the ground they don’t get to walk away with more of the companies money. Would HP, one of the largest PC makers in the world, have had to deal with a CEO who tried to dismantle a money-making arm of the company after 11 months in office if that loss in revenue affected his ability to make ends meet?
This, of course, would not happen in most companies. After booting out a bad CEO a board would pay almost anything for one with a proven track record, and those can be very costly. But even a high five-figure salary, augmented by heavy stock options, can pay off more in the long run for a good CEO.
It would take some backbone for a board to insist on paying primarily in stock, and most won’t do it. Boards of directors seem to have short memories, thinking their new CEO will always be better than their last one. Of course, if the new CEO was better than the old one they would want to get mostly stock.
Oh, and as I was writing this, Sony posted a 1.2 Billion dollar loss for the year, mostly caused by their TV business, which hasn’t been profitable in eight years. How does Sony CEO Howard Stringer still have a job?
