Are CEOs Overpaid?

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Monty says yes.

Walter Williams says No!
Here are his main points.

1. Many attacks on CEO's are irrational.
Some are driven by envy and others are based on over-generalizations as people use the Enron and WorldCom scandals to smear all CEOs.

2. Jack Welch made GE a lot of money.
When he became General Electric's CEO in 1981, the stock market judged the company to be worth $14 billion. Today, GE is worth $500 billion

If Welch was paid one-half of a percent of the increase in value, his comp would have been $2.5 billion instead of the few hundred million he received.

3. Jim Kilts made Gillette a lot of money.
Gillette was near death when Kilts took over in 2001. It's stock had lost half its value in two years and sales volume and market shares of its major brands had plummeted.

By January 2005 Gillette's market value increased by $11.3 billion, a 34% improvement. And since the PG-Gillette merger announcement, Gillette's value has risen another $5.7 billion.

Kilts' comp package over the past four years totals $17.5 million. And he's going to make $153 million from the merger.

That's a lot of money but it's only 1.5% of his contribution to Gillette's value.

4. The numbers say they're worth it.
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?

How much to turn Gillette from a corporation in steep decline into one Procter & Gamble was willing to buy for $57 billion?

If a corporation could buy a $300 computer that could do what a CEO could do, would it pay CEOs millions of dollars?

5. If you don't pay them, the competition will.
If a company has a good CEO, others will want him too. So, to keep him, you've got to pay them more than anyone else will.


Williams makes two odd assumptions .

1. That criticism is aimed at successful CEOs
Most critics of exec pay focus on pay of CEOs at mediocre or poor performing companies.

Having said that, it is still hard to fathom why either of these men needed that many nickels in the end...which makes them natural lightning rods for the issue.

2. The CEO is the primary driver of company performance.
The question is not how much did Jack Welch make for GE shareholders but rather how much more than a simply competent CEO did he make for shareholders.

Empirical evidence suggests that we
over attribute success to CEO skills.

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