Are CEO's overpaid?

[Cal]

Are CEOs overpaid?
Walter E. Williams

March 2, 2005


In the wake of the Enron and WorldCom corporate scandals, the purveyors of envy have found another opportunity to preach about what they consider the evils of high CEO salaries, retirements and bonuses. After all, according to them, evil must be afoot when a corporate executive earns more in a week that the average worker earns in an entire year. Let's look at it.

Dishonest Enron and WorldCom CEOs are rare among corporate executives. As such, all CEOs shouldn't be tarnished for the misdeeds of a few any more than we'd tarnish all newspaper reporters because a few among their ranks were liars like the Boston Globe's Patricia Smith and Mike Barnicle, Jayson Blair of The New York Times, and The Washington Post's Janet Cooke.

Is a CEO worth millions of dollars to a corporation? When Jack Welch became General Electric's CEO in 1981, the stock market judged the company to be worth about $14 billion. Through hiring and firing, buying and selling, Welch turned the company around before he retired in 2001. Today, GE is worth nearly $500 billion, making it one of the most valuable companies in the world. What's a CEO worth for providing the brains and leadership to turn a $14 billion corporation into one worth $500 billion? How about paying just a measly one-half of a percent of the increase in value? If that were the case, Welch's total compensation would have come to nearly $2.5 billion, instead of the few hundred million that he actually received.

The Gillette Co. was in the early stages of corporate death in 2001 when Jim Kilts took over as CEO. The company's stock had lost almost half of its value in two years, and sales volume and market shares of its major brands had plummeted. Between the time Kilts took over at Gillette and this year's Jan. 28 announcement of Procter & Gamble's purchase of Gillette, Gillette's market value increased by $11.3 billion, a 34 percent improvement, and since the announcement, Gillette's value has risen by another $5.7 billion.

Kilts' salary and bonuses over the past four years, totaling about $17.5 million, haven't been especially large by CEO standards. Predictably, however, Kilts' pay and particularly the size of his compensation package from the merger -- $153 million -- have been the subject of media carping, particularly in Boston, where Gillette is headquartered. This figure is indeed large, but it, added to what Gillette has paid him since 2001, makes Kilts' total compensation a mere 1.5 percent of his contribution to Gillette's value.

Here are a couple of questions to you: If you were the owner of GE, and a CEO could turn your $14 billion corporation into a $500 billion one, how much would you be willing to pay that man in salary and bonuses? Or, in the case of Jim Kilts, turning Gillette from a corporation in steep decline into one Procter & Gamble was willing to buy for $57 billion, how much would you be willing to pay?

Then, you might ask yourself: If a corporate board of directors could buy a $300 computer that could do what a CEO could do, would it pay CEOs millions of dollars? By the same token, if an NFL owner could hire a computer to make the decisions that star quarterbacks make, why would he pay some of these guys yearly compensation packages worth more than $10 million?

There's another important issue. If one company has an effective CEO, it is not the only company that would like to have him on the payroll. In order to keep him, the company must pay him enough so that he can't be lured elsewhere.

If you ask me, I know of only one class of workers who are overpaid and underworked -- college professors.

 

[ez now]

Here are a couple of questions to you: If you were the owner of GE, and a CEO could turn your $14 billion corporation into a $500 billion one, how much would you be willing to pay that man in salary and bonuses? Or, in the case of Jim Kilts, turning Gillette from a corporation in steep decline into one Procter & Gamble was willing to buy for $57 billion, how much would you be willing to pay?
I personaly would compensate the hourly employee, you know thats the employee thats actually making the company. supervision doesnt see this for some reason jack welch was hired to do his job if he didnt like it he should have went home. how about taking the 2.5 billion and spreading it out to all employees that makes the company be a company and cutting his pay, to lets see, a mere 100% more than an hourly employee. That sounds fair to me.

 

[ez now]

sorry about the last post but you can put jim kilts right next to jack welch they hired you to do your job just the same as they hired the hourly employee

 

[ez now]

Cal,
I realize that you have alot of thoughts that may be right or wrong in your last post, but the last statement I am afraid that I can not agree with. My wife is a Kindergarten teacher in a city school where 97% of the students qualify for free lunches, which means high poverty and academically at risk students.
I realize that you said college professors were over paid and under worked but they are educators also. So we assume then you must consider that she is as also over paid and under worked.
She said she would be glad to see if you could last 1 hour in her classroom.

 

[Cal]

Here are a couple of questions to you: If you were the owner of GE, and a CEO could turn your $14 billion corporation into a $500 billion one, how much would you be willing to pay that man in salary and bonuses? Or, in the case of Jim Kilts, turning Gillette from a corporation in steep decline into one Procter & Gamble was willing to buy for $57 billion, how much would you be willing to pay?
I personaly would compensate the hourly employee, you know thats the employee thats actually making the company. supervision doesnt see this for some reason jack welch was hired to do his job if he didnt like it he should have went home. how about taking the 2.5 billion and spreading it out to all employees that makes the company be a company and cutting his pay, to lets see, a mere 100% more than an hourly employee. That sounds fair to me.

It's the CEO who grew the company, not the hourly employee. The difference in abilities of the CEO can mean the difference between phenomenal growth and bankruptcy. The hourly wage earners should be justly compensated on their own merits, work ethics, and drive and ability to advance. Any ceiling on personal achievement is a black eye to a free capitalist society, as is undeserved and unwarranted compensation for any poor performance or lack of profitability.

 

[Cal]

Cal,
I realize that you have alot of thoughts that may be right or wrong in your last post, but the last statement I am afraid that I can not agree with. My wife is a Kindergarten teacher in a city school where 97% of the students qualify for free lunches, which means high poverty and academically at risk students.
I realize that you said college professors were over paid and under worked but they are educators also. So we assume then you must consider that she is as also over paid and under worked.
She said she would be glad to see if you could last 1 hour in her classroom.

I don't know if you're real familiar with Walter E. Williams, the professor who wrote this. He is a black conservative with George Mason University that I hold in extremely high esteem. His statement about college professors being underworked and overpaid would in all likelihood pertain to his absolute disgust of the liberal, and sometimes anti-American, mentality which contaminates so many college campuses and faculty, IMO. It would be a huge stretch to include a kindergarten teacher in this scenario. But could I "last 1 hour" in this setting? I can be pretty intimidating when I set my mind to it, so geussing I could. It would also be interesting to see how long you or your wife could hold up if you had to follow me around, and were allowed the same hours of sleep and days off that I allow myself. BTW, how hard do you think some of the most successful CEO's are pushing themselves?

 

[Bull Burger]

Here are a couple of questions to you: If you were the owner of GE, and a CEO could turn your $14 billion corporation into a $500 billion one, how much would you be willing to pay that man in salary and bonuses? Or, in the case of Jim Kilts, turning Gillette from a corporation in steep decline into one Procter & Gamble was willing to buy for $57 billion, how much would you be willing to pay?
I personaly would compensate the hourly employee, you know thats the employee thats actually making the company. supervision doesnt see this for some reason jack welch was hired to do his job if he didnt like it he should have went home. how about taking the 2.5 billion and spreading it out to all employees that makes the company be a company and cutting his pay, to lets see, a mere 100% more than an hourly employee. That sounds fair to me.

ez now,

This is going to be a lot of fun here. Would it be fair to say you can find hourly employees anywhere, anytime, anyplace? OK, It's a lot harder to find a person who can turn a large money losing corporation into a profitable corporation, do you agree? So if you don't find that industrious CEO, the company folds and you have thousands of "hourly employees" with no jobs. Where does that leave the company or employees? Do you see the fallacy in your evaluation?

Do you understand why companies that have unionized employees & are overtaxed & overregulated usually relocate overseas?

It's time you turned off PBS and CNN and go ahead and watch a fair and balanced channel like Foxnews. Then you can see the real world.

Good luck,

BB

 

[ez now]

bull burger I thiught you sounded a lot like Bill Oreilly and Shawn Hannity. If it wasnt for good hard working employees companys wouldnt have a chance. You ask if it would be fair to say companys can find employees anywhere. I would hope so sense gw just let in over 10 million new soon to be employees from mexico. and do I understand why unionized companys move overseas, thats an easy one ( NAFTA ). Its time you turned off fox news. Just watch any other news network and read the papers. What I was saying in my post it isnt right to have such outrageous pay differences between the ceo and hourly employees.They all make up the company wouldnt it be nice if they was fair and ballanced with their pay scales.

 

[ez now]

cal I bet you would do a fantastic job intimidating 6 year old kids, as far as me and my wife following you around I would say we could keep up unless you are a ceo, we might have problems with the mid week afternoon business meetings at the golf course.

 

[Soapweed]

Looking at people and animals, my observation would be that hands, feet, and legs don't accomplish much unless the person or animal has a pretty good brain. There is probably a correlation here to the question at hand.

 

[ez now]

soapweed,
I think that there are major differences in animals and people
cal.
putting that aside I will agree that it takes someone that has set goals in there life and have been willing to work hard to get themselves to the point that you must have reached in your life and that is something you should be very proud of.
On the other hand, someone else can be just as intelligent as the next person but decide to set their goals and ambitions in an other direction. Such as motivating and changing young lives for the better in hopes that one day they maybe the ones that are sitting in the place that you must now be. I feel that even though the tangible awards may be different they are never the less just as important. ps I will take this time now to appologize for the ceo comment in my last post

 

[Soapweed]

Here is another thought. Consider a cowboy as the CEO and his prize cutting horse as Labor. A good cowboy can accomplish a lot with a poor horse, whereas, a poor cowboy using a top-notch cutting horse doesn't get much done.

 

[Steve]

Let me put it another way,

Your wife gets and deserves a fair pay, in many classrooms the teachers have aids, why is the Aid paid less the 1/4 of the teachers compensation* rate? does the aid work less?, contribute less? have more days off?

how about a substiitute teacher, with less security, why is he or she paid less? offered less hours, not given protection by the union? both her and the aid contribute to the class room and are invaluable? yet the unions seldom represent them? seldom are they offered health care, vacation days, sick days, or even raises. and face the first line of cuts.

* don't confuse hourly rate with compensation package.

 

[Bull Burger]

Let me put it another way,

Your wife gets and deserves a fair pay, in many classrooms the teachers have aids, why is the Aid paid less the 1/4 of the teachers compensation* rate? does the aid work less?, contribute less? have more days off?

how about a substiitute teacher, with less security, why is he or she paid less? offered less hours, not given protection by the union? both her and the aid contribute to the class room and are invaluable? yet the unions seldom represent them? seldom are they offered health care, vacation days, sick days, or even raises. and face the first line of cuts.

* don't confuse hourly rate with compensation package.

Steve,

Excellent analogy!


BB

 

[Liberty Belle]

That was a good analogy! I do a lot of substitute teaching and a good sub does the same job the salaried teacher does without the perks. Do I think that's unfair? No. Nor do I think it unfair that the CEO is paid mega bucks for his expertise while the employees are paid much less. They have the freedom to find another job if they don't like the setup and it's the company owners who decide if the CEO is worth the salary based on the results of his work.
And Cal as a kindergarten teacher? Just the thought brings a smile. He'd do a great job! Teaching kindergarten is as much crowd control as it is teaching. It's kind of like trying to herd baby chicks. They are always on the move, always talking, and most of them look up to the teacher, literally and figuratively.

 

[ez now]

liberty belle, you being a substitute teacher, if your looking for a job you should take a copy of your last post and give it with your resume Im sure they would welcome your thoughts of teaching kindergardners quite well. soapweed concerning your last post I guess I will see you at the next horse race at the kentucky derby riding your pony. steve for your post a full time hourly employee is not a substitute worker.

 

[Cal]

That was a good analogy! I do a lot of substitute teaching and a good sub does the same job the salaried teacher does without the perks. Do I think that's unfair? No. Nor do I think it unfair that the CEO is paid mega bucks for his expertise while the employees are paid much less. They have the freedom to find another job if they don't like the setup and it's the company owners who decide if the CEO is worth the salary based on the results of his work.
And Cal as a kindergarten teacher? Just the thought brings a smile. He'd do a great job! Teaching kindergarten is as much crowd control as it is teaching. It's kind of like trying to herd baby chicks. They are always on the move, always talking, and most of them look up to the teacher, literally and figuratively.

Glad that you found time to get back on the board, Liberty Belle! I bet you do a great job with the substitute teaching.

 

[Cal]

liberty belle, you being a substitute teacher, if your looking for a job you should take a copy of your last post and give it with your resume Im sure they would welcome your thoughts of teaching kindergardners quite well. soapweed concerning your last post I guess I will see you at the next horse race at the kentucky derby riding your pony. steve for your post a full time hourly employee is not a substitute worker.

Do I detect a little sarcasm ez now? Maybe, maybe not. I know for a fact that the three people you are addressing in this post have some valuable life lessons and knowledge to share with all of us, and have done so repeatedly over the last year or more that I've been posting on this forumn.

 

[Steve]

steve for your post a full time hourly employee is not a substitute worker.

I offered up three "classes" of worker that do an "equal" job for seperate compensation packages. and used it as an anology, simple enough. I did not say that a substitute teacher was a full time worker,

I know of one young Lady that has worked FULL TIME as defined by LAW and in the same district in the same class, and still gets paid at less the Half of the rate the teacher that she is replaceing with NO benifits. which equals out to one fourth of the Compensation package. But that was not my point.

My point was to show that workers are paid different , sometimes unfair amounts according to thier skills and training, and even by the contract thay were able to negotiate as was in the case shown. is it always fair no is it reality. yes. only in a communist enviroment will they all be paid equally irrigardless of wether we work or not.

But then again none of my questions were answered. was yours?

 

[ez now]

steve for your post a full time hourly employee is not a substitute worker.

I offered up three "classes" of worker that do an "equal" job for seperate compensation packages. and used it as an anology, simple enough. I did not say that a substitute teacher was a full time worker,

I know of one young Lady that has worked FULL TIME as defined by LAW and in the same district in the same class, and still gets paid at less the Half of the rate the teacher that she is replaceing with NO benifits. which equals out to one fourth of the Compensation package. But that was not my point.

My point was to show that workers are paid different , sometimes unfair amounts according to thier skills and training, and even by the contract thay were able to negotiate as was in the case shown. is it always fair no is it reality. yes. only in a communist enviroment will they all be paid equally irrigardless of wether we work or not.

But then again none of my questions were answered. was yours?

steve, I think you need to talk to this young lady again to see if she signed a document stating she knows she is a part time employee. This gets the school out of paying any type of benifit package that they would have to after a teacher has worked 120 days. Im pretty sure she is recieving retirement benifits my wife went thru this same situation. it would be nice to know who interduced this bill. This is the same law that lets mcdonalds and the likes get by with hireing their 39 hour weekly employees so they to dont have to pay benefits. What kind of benefits do their ceo get. Im not bashing you, but cant you see where Im coming from.