Compensation

This is a big subject and one that I probably shouldn't tackle without knowing more about economics, but really, these days I have to wonder if anyone knows anything about economics. Even in a capitalist society, you have to be willing to feed society at large, because if you don't, who will be able to buy the products and services from which you expect to profit? And you are selling products and services, right? Wait, maybe not--maybe the big profits these days are made in the virtual shell games, not unlike the guy in Times Square with the walnut shells--damn my luck, why can't I EVER win at that?

But I digress. What has really set me off is an article in USA Today about Executive Compensation in 2007. Now, you can call me naive, but I always thought that kind of money was made by the people who had ideas, founded companies, took risks, and worked hard to make them pay off. Every company was founded by somebody, right? I don't begrudge those guys their fortunes. Or take the Nobel Prize winners, the innovators, the maverick geniuses who changed the world. By all means, retire in luxury, and thanks for the big ideas.

But these CEOs--I don't get it. Why are they so special? What makes their MBAs better than the average MBA? Why are they worth millions in a society where almost everyone else is worth so much less? Why are they paid a fortune for walking in the door of someone else's going concern and keeping it going? (Or not-this does not actually seem to be a problem when it comes to collecting bonuses, stock options, and whatnot.)

This is what I have been thinking about. I have approached this from a few different angles to see if I can begin to imagine why pay packages of up to 83 million dollars per year are justified, and I keep hitting dead ends. Here are some of them.

Leadership: Well, 4 of the top 10 CEO packages are for heads of financial institutions (Merrill Lynch, Goldman Sachs, American Express, JP Morgan Chase). If you have picked up a newspaper in the last several months, I don't think I need to elaborate here. One of the headlines in this same USA Today section of newspaper reads "Some firms eye performance-driven pay plans." This rendered me speechless (and temporarily unable to type). What a concept, eh?

Consequence of error: This is something businesses use to figure out the relative responsibility and corresponding pay packages of positions within their companies. I think that the consequence of error for someone who is being paid 83 million dollars PER YEAR would be annihilation of the entire planet. We are still here, so he must be doing a bang-up job. Thank you John Thain.

Risk: This is a somewhat related area. If you are willing to shoulder an entire large company and assume all of the risk of the decisions being made, you should be compensated accordingly. I believe that means the people who really deserve compensation are the shareholders, who have taken it on the chin in a big way while those who fed them to the flames suffered not at all. No, wait, not fair. G. Kennedy Thompson of Walchovia was docked almost 2.5 million from his 18.5 million dollar annual pay package. Time to tighten the belt at the Thompson household!

There are certainly other industries where people are paid large salaries and I don't want to single out business. Within reason, I can kind of see why this makes sense for sports. Athletes can have enormous talent and make a lot of money for a franchise. At the same time, their playing days are limited, their risk of career-ending injury huge. Because sports are for the young, they may have short-changed education and be ill-prepared for other careers. They may need to live on whatever they can earn in their salad days for a lifetime.

Entertainment is similar in terms of shelf life, and most entertainers pay dues for many poverty-stricken years. Those entertainers with star power and the grit and good fortune to make the big time , well I don't begrudge them a more than decent living.

But here is the thing--I can't be Meryl Streep or Brett Favre for a day, or even a minute. But I think I could be the CEO of any company for a day. I don't think the company would be any worse off, and all I ask is the prorated salary for that one day. That, and the name of a good retirement consultant.