How to Have Your Say On CEO Pay

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Few things raise the dander of radical egalitarians more than the growth of CEO pay. The umbrage is as much aesthetic as it is economic, as evidenced by the fact that the most impassioned complaints leveled against these corporate titans are not so much criticisms of their failure to deliver value for money but over the gap between CEO pay and wages for everybody else. That's because the former criticism raises the inconvenient question, value to whom? And therein lays the answer to the riddle posed by this column.

First the facts. CEO pay has undoubtedly been on a tear. The numbers are eye popping. And I don't mean just for the founder-CEOs who can lay claim to creating the machine that pays them. The hired hands are raking it in as well. According to average total compensation for a representative sample of S&P 500 CEOs exceeded $11M in 2010. That's a boatload of money. How can you not suck in your breath when you hear that?

But the story takes on different shades of meaning from there. Google up the words CEO Pay and you notice a few interesting things. First, the AFL-CIO has purchased the right to be at the top of the first page of search results. Taking their cue from President Obama's recent declaration of class warfare, this lets them show off their new Executive Paywatch website that documents the unseemliness of excessive CEO pay. Prominent on the site is a chart showing how many nurses, teachers, police officers, and fire fighters could be supported if you could somehow confiscate and redistribute the pay of an average CEO. No, our nation's union bosses aren't demanding that - yet. But the inference is inescapable.

You have to get to the third page of search results before you see the first story that even mentions a connection between CEO pay and performance, in this case the lack thereof for one specific company. Not until page four do you get the first comprehensive table showing the correlation between 2010 CEO pay and total shareholder return for two hundred companies whose gross revenues exceeded $7B.

Take a look at this table. It is clear that some shareholders got their money's worth and some didn't. At the end of the day, though, where does that money come from and to whom does it belong? Not nurses, teachers, police officers, and fire fighters.

There are only three constituents that have a dog in the fight over pay for any given CEO, and that is the customers, employees, and shareholders of said corporation. Unless the company is owned or supported by taxpayers, the rest of us are observers.

So here is how you can have your say on CEO pay. If you think a company pays its CEO too much you should refuse to contribute to this injustice by not buying that company's products. If you are not willing to do this you are not serious about the issue.

If you work for a company whose CEO's pay offends you, tell your boss that you're going to take your valuable services elsewhere unless some of that pay gets diverted to you. If you are an outspoken critic of CEO pay and are not willing to do this you are a blowhard and a coward.

If you hold stock in a corporation and you think it pays its CEO too much, or even if the company's executive compensation practices are not transparent enough for your liking, sell your stock and good riddance. If you don't do this you are actively contributing to the problem.

Everything else is political demagoguery. It is no more your business what some random CEO makes than it is your business to tell the Yankees how much they should pay their starting lineup.

There is one important exception to this, of course, and that is if Congress has forced you to become a silent partner in a company by diverting your taxes into that company's coffers. General Motors, any company getting perennial farm subsidies like Archer Daniels Midland, over five hundred banks that haven't paid back their TARP bailout, government sponsored monstrosities like Fannie Mae and Freddie Mac, and beltway bandits feasting off federal contracts are good candidates.

In those cases every taxpayer has a right to scream and yell and demand that the CEO's pay be cut, his private jet grounded, his limo auctioned off, and his free gym membership cancelled until he gets his snout out of the public trough. That might actually free up money to pay all those nurses, teachers, cops, and fire fighters.

Funny, but I don't see the AFL-CIO calling for that.


Bill Frezza is a fellow at the Competitive Enterprise Institute, and a Boston-based venture capitalist. You can find all of his columns, TV, and radio interviews here.  If you would like to have his weekly columns delivered to you by e-mail, click here or follow him on Twitter @BillFrezza.

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