What the Buck?
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What the Buck?
Does it make sense to pay your CEO $1 a year?
Posted Wednesday, December 3, 2008 - 4:55pm
Indeed, the Big Three CEOs appear to be late to the party. Alexander Cwirko-Godycki of compensation-research firm Equilar says that 32 firms in the Russell 5000 index already have CEOs making a dollar or less. Meanwhile, 24 companies have reduced executive salaries or bonus opportunities since the beginning of June. (Don't feel too bad, though: Companies can always top up a low or nonexistent salary with some more shares, which are pretty cheap these days.)
Across-the-board cuts for CEOs, senior managers, and front-line staff, on the other hand, can be part of a real cost-cutting strategy and not just a public mea culpa. But companies have to be careful: cut too much, and they could lose a valued general counsel or CFO to another company or another industry. (Nardelli, ex-CEO of the Home Depot, is a well-compensated refugee from the retail industry.)
For such an obvious ruse, it's surprising that CEO pay cuts alone have any PR effect, but the Iacocca example, with noble calls for sacrifice, still resonates. Congress practically demanded, and the Big Three automaker CEOs acquiesced to, a dollar-a-year salary—the attraction of the dollar-a-year man of yore, serving his company and country, is just too magnetic. Meanwhile, we may be ignoring the underlying paradox of paying CEOs: In good times, we pay them a lot to reward them. In bad times, they'll take the money they've already made and run.
Explainer thanks Tim Bartl of the Center for Executive Compensation, Graef Crystal, and Alexander Cwirko-Godycki of Equilar.
Comments
plays both ways
You may be making an assumption that a lot of us don't care to make: that is, any CEO involved with the Big 3 auto companies is worth keeping if they decide to leave because $1 isn't enough. I can't imagine another company board respecting their opinion if they apply for some other open position; I can't imagine anybody crying too hard if they leave taking their failed leadership with them. But, I often wonder if CEO's aren't like sports coaches; failure, even severe, doesn't seem to preclude another organization from hiring them.
How about minimum wage?
Why not minimum wage instead of $1 a year? That might put them in solidarity with a lot more people. Of course there will be those stocks and options that cheapen the gesture - but at least then compensation is tied directly to performance. But here's an even better question: Why not demand the same from any bank CEOs receiving government bailouts?