In a recent New York Times article on CEO pay, the reporter closely examines pay practices where companies use peer groups to justify CEO pay. But they don’t disclose who those peers are, allowing CEOs to inflate their pay by carefully choosing the peer group.
That all sounds fine and dandy, but I must ask: what difference does the peer group make, even if it’s chosen well? There is this bizarre assumption that CEO pay should somehow be linked to what other companies pay. What absurdity! That argument would suggest that if it’s the norm to vastly overpay executives (which it is), then a company should overpay their CEO for doing a job that just isn’t worth what they’re being paid.
“But that’s the market price for a CEO. we HAVE To pay that or we can’t hire a good CEO.” Bull-pucky. Startups and small businesses routinely find CEOs who will work for relatively low salaries because they’re devoted to the company or industry. IF they do well, their stock is worth something, but only if they truly do well. (Many F500 company CEOs think so little of their own skills they find it necessary to backdate their own options.)
Shouldn’t we use the same criteria for Fortune 500 CEOs? In fact, why not have prospective CEOs pay for the job? After all, the jobs are in very short supply, carry huge prestige and status, and give the job holder the unprecedented opportunity to test their skills and ideas on a scale 99.9999% of the human race can never know.
So there’s my solution to CEO pay: have the CEOs pay for the job. You’ll quickly weed out all but those who have an intrinsic care, interest, and passion for the job. It’s not at all clear to me that you’ll get a lower calibre of candidate–only different. So let’s give it a try. Then we can recapture all the money and time we’re spending examining CEOs and putting together niggling little disclosure policies and do something useful with our time instead.