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[james.hendrickson]

Compensation of CEOs is approved by a company's board of directors. If you have a 401K, you are a shareholder of many of these companies. Call investor relations of GM and tell them that the CEO needs a pay cut - he makes too much. You're a shareholder just like anyone else is. You have a say with your proxy vote. Use it! If Elon Musk is making too much money, if enough shareholders get together and tell Elon to pound sand, you can probably get someone willing to take over Telsa for 30 bucks an hour.

That's the beauty of publicly-traded companies. Ultimately, it's the shareholders who decide. The shareholders decided who is on the board, and the board hires and fires company officers.

That's correct - and most shareholders don't have enough clout to force CEOs to reduce their compensation.

John Bogle noted this in his book "Battle For the Soul of Capitalism". What he basically argued was that ownership has become to diffuse for owners to force managers to act in the interests of shareholders. Essentially, Bogle said that concentrated ownership of companies has declined precipitously over the years. This has resulted in ownership becoming divided among thousands of small shareholders. He also argues that intermediaries are passive or conflicted, and boards are generally not effective in forcing management to act in the shareholder's best interests.

As a result, management tends to act in their own interests, which results in larger salaries and bonuses paid to themselves.

The irony here is that index investing, which he pioneered, has contributed to this.

[TexasHusker]

That's correct - and most shareholders don't have enough clout to force CEOs to reduce their compensation.

John Bogle noted this in his book "Battle For the Soul of Capitalism". What he basically argued was that ownership has become to diffuse for owners to force managers to act in the interests of shareholders. Essentially, Bogle said that concentrated ownership of companies has declined precipitously over the years. This has resulted in ownership becoming divided among thousands of small shareholders. He also argues that intermediaries are passive or conflicted, and boards are generally not effective in forcing management to act in the shareholder's best interests.

As a result, management tends to act in their own interests, which results in larger salaries and bonuses paid to themselves.

The irony here is that index investing, which he pioneered, has contributed to this.

yes, it's pretty hard to demand a lot of votes when you only own .0000000000001% of a company.

That said, the board of directors determine a CEO's salary, not the CEO. So they are the ones who determine what is "too much" and what is "too little".

If a company knocks down a $ billion a year with a CEO earning $20 million, that's a bargain. If you decide to go cheap on the CEO and pay one $500K a year, and next thing you know he's incompetent and the company is only making $500 million a year, you kind of screwed yourself. And all those shareholders who's shares have been cut in half ain't exactly happy campers.

You pay talent what you have to pay them to keep them. Is Patrick Mahomes really worth $450 million? Might not be to you and I - the stadium janitors work harder than he does - but to the Kansas City Chiefs, he's worth every penny of it.

[james.hendrickson]

yes, it's pretty hard to demand a lot of votes when you only own .0000000000001% of a company.

That said, the board of directors determine a CEO's salary, not the CEO. So they are the ones who determine what is "too much" and what is "too little".

If a company knocks down a $ billion a year with a CEO earning $20 million, that's a bargain. If you decide to go cheap on the CEO and pay one $500K a year, and next thing you know he's incompetent and the company is only making $500 million a year, you kind of screwed yourself. And all those shareholders who's shares have been cut in half ain't exactly happy campers.

You pay talent what you have to pay them to keep them. Is Patrick Mahomes really worth $450 million? Might not be to you and I - the stadium janitors work harder than he does - but to the Kansas City Chiefs, he's worth every penny of it.

Respectfully Texas, thats not what Bogle is saying. Bogle is saying CEOs basically control companies without effective checks on their ability to divert corporate profits to themselves. According to Bogle the reason for their high salaries ISN'T the value they bring, rather the fact that nobody is really keeping their hands out of the cash register.

So, its a corporate governance issue, not a market salary dynamic.

[TexasHusker]

Respectfully Texas, thats not what Bogle is saying. Bogle is saying CEOs basically control companies without effective checks on their ability to divert corporate profits to themselves. According to Bogle the reason for their high salaries ISN'T the value they bring, rather the fact that nobody is really keeping their hands out of the cash register.

So, its a corporate governance issue, not a market salary dynamic.

I think you have a problem when a CEO is determining his own compensation. That’s shareholder lawsuit material. It is also likely illegal: Corporate officers have a fiduciary obligation to the shareholders. If they are doing things that jeopardize the shareholders and/or the financial health of the entity, they face substantial civil and even criminal penalties.

Many folks don’t realize that corporations have a number of rights and protections just like people.

[james.hendrickson]

I think you have a problem when a CEO is determining his own compensation.

Correct.

[Fishindude77]

I sit on the board of a publicly traded company and own a pretty good chunk of the stock. We (the board) have a compensation committee that reviews and approves the salaries and compensation packages for all of the key managers as well as the bonus system.
I think this is pretty standard procedure. CEO's and other officers of a company can't take large sums on money out without board approval, and a boards first responsibility is to it's shareholders.

Further - With the company I am involved in, we try to pay "above market" compensation for our key managers so that we get the best people available to run the business. This has been a wise strategy as the company is doing very well, and more than once in the last several years we have awarded a large special dividend to all shareholders, in addition to the routine dividends.

[TexasHusker]

I sit on the board of a publicly traded company and own a pretty good chunk of the stock. We (the board) have a compensation committee that reviews and approves the salaries and compensation packages for all of the key managers as well as the bonus system.
I think this is pretty standard procedure. CEO's and other officers of a company can't take large sums on money out without board approval, and a boards first responsibility is to it's shareholders.

Further - With the company I am involved in, we try to pay "above market" compensation for our key managers so that we get the best people available to run the business. This has been a wise strategy as the company is doing very well, and more than once in the last several years we have awarded a large special dividend to all shareholders, in addition to the routine dividends.

So you’re not going to toss the bastards out because they make 100X more than a Mac Burger employee? You could probably find people to run that company for $20 an hour!

[QuarterMillionMan]

Give a man a fish and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.

[Snicks]

CEOs over value to the management in order to keep the money flowing at the top. Pretty much, let's all party while the company burns. Over and over we see these corporate Raiders, who had nothing to do with starting or building the company, come in and run the company into the ground but are getting huge bonuses and stock options all while the company is on fire and failing. It's unbelievable. Their salaries should be solely tied to actual performance in terms of the the health of the company not their perceived "value".

[TexasHusker]

CEOs over value to the management in order to keep the money flowing at the top. Pretty much, let's all party while the company burns. Over and over we see these corporate Raiders, who had nothing to do with starting or building the company, come in and run the company into the ground but are getting huge bonuses and stock options all while the company is on fire and failing. It's unbelievable. Their salaries should be solely tied to actual performance in terms of the the health of the company not their perceived "value".

That's interesting. How do CEOs overvalue to the management? Who is the management?

[Snicks]

That's interesting. How do CEOs overvalue to the management? Who is the management?

You don't know what management is?

[TexasHusker]

You don't know what management is?

Well the "management" in a corporation generally refers to the officers, and the CEO would be one of them. So are you saying that the CEO overvalues the company to the other officers? If so, how does (s)he do this?

[Snicks]

Well the "management" in a corporation generally refers to the officers, and the CEO would be one of them. So are you saying that the CEO overvalues the company to the other officers? If so, how does (s)he do this?

I am saying the upper management over values themselves as evidenced by the lovely gifts and bonuses they give themselves when the company is going down the toilet.

[james.hendrickson]

Correct Snicks, management that pays themselves high salaries while their companies earnings decline is a red flag.

[TexasHusker]

Yes that’s terrible. Those guys should go to jail. What companies out there are letting the CEO pay himself? I need to avoid those for sure.