Tuesday, October 27, 2009

Those greedy corporate CEOs
and their absurdly high salaries

Corporate CEO salaries have been a target of criticism for a long time, and that criticism increased during the mortgage banking collapse, when bank CEOs also became targeted for doing a lousy job.

The heads of large companies do make huge salaries, as shown by this sample from the 2008 AFL-CIO CEO Pay Database: Robert A. Iger, The Walt Disney Company, $51 million; Lloyd C. Blankfein, The Goldman Sachs Group, Inc., $42.9 million; Mark V. Hurd, Hewlett-Packard Company, $34 million; and Rex W. Tillerson, Exxon-Mobil Corporation, $32 million.

There are a few reasons for this criticism, including envy and not understanding how businesses work. However, some people who understand perfectly well how businesses work also think CEOs are overpaid. People wonder how CEOs can be worth multi-million dollar salaries.

The short answer is that this is America – at least for a little while longer – and people are able to make as much as they can. Businesses want the best talent they can find, and they’ll pay what they must to get the right person to run the company.

Here’s one example:

Rex Tillerson’s company, Exxon-Mobil, is the world’s largest publicly traded company, the world’s largest refiner and marketer of petroleum products and also among the world’s largest chemical companies. It provides a job for 30,000 Americans and 80,000 people worldwide.

Exxon-Mobil had total income of $477.3 billion in 2008, and spent $395.6 billion on operations and other expenses. Some of the same people who get upset with CEO pay also get upset with the amount of money Exxon-Mobil earned in 2008, and for the same reasons. The company’s profit was $45.2 billion, which is a lot of money. But considering that Exxon-Mobil had $477 billion in income, $45.2 billion really isn’t excessive; only about 8.9 percent.

The company paid taxes of approximately $120 billion, more than twice its profit, and paid its shareholders $40 billion in dividends. Mr. Tillerson was in charge of the company and responsible for its performance. He did his job well. How much is that performance worth to shareholders?

If you still think Mr. Tillerson and his fellow corporate heads are overpaid, remember that corporate CEOs are not the only ones making a lot of money, even though they are the ones whose incomes are most frequently criticized. So do professional athletes, entertainers, and TV personalities, including some news anchors.

The top five athletes last year, for example, were also highly paid, and because of their success attracted lucrative endorsements from product manufacturers: Golfer Tiger Woods earned $100 million; boxer Oscar De La Hoya, $43 million; golfer Phil Mickelson, $42 million; auto race drivers Kimi Raikkonen and Michael Schumacher, $40 million and $36 million.

Salaries in the world of entertainment also boggle the mind. Take movie actors: Matt Damon made $26 million for The Bourne Supremacy; Johnny Depp takes home $20 million per film; Nicole Kidman gets up to $17 million per film; and George Clooney routinely collects more than $15 million per film.

On television, the highest-paid person on the 2008 prime-time series list is Charlie Sheen at $825,000 an episode, and with money he gets from owning a stake in his show, he makes nearly $20 million a year. David Letterman gets $40 million annually, and American Idol’s Simon Cowell’s annual pay is $36 million.

We even see that some of the people that deliver the news have seven- and eight-figure annual salaries, like CBS Evening News anchor Katie Couric at $15 million; Matt Lauer, NBC Today co-anchor, $12 million; ABC News’ Diane Sawyer makes $12 million; Meredith Vieira, NBC Today co-anchor, $10 million; NBC Nightly News anchor Brian Williams takes home $8 million, Anderson Cooper of CNN is paid $5 million; and MSNBC’s Keith Olbermann gets $4 million.

These CEOs, athletes, entertainers and news people are among the best in their respective fields. Their pay is not based entirely upon their performance, however, because some CEOs drive their companies into the ground; some athletes make horrible mistakes and lose instead of win; some movies and TV shows do not do well, despite the stars that appear in them; and news anchors often produce lousy ratings. Some high earners in every career field have notoriously bad personal problems, and some have committed crimes.

Because of the expectation of high levels of performance, these folks are in high demand, hence the high paychecks, sometimes in spite of embarrassing personal problems or criminal involvement.

Tampa Bay Rays owner Stuart Sternberg sees no problem with big salaries in sports. "People should be able to make what they make," he said. That idea applies equally to everyone in America, even CEOs.

Maybe we should make thoughtful judgments about the value of what each of these people produces. Which of them contributes the most to the society at large; which is the more valuable: a movie, a television program, a winning team or athlete, a news program or a business that provides useful products or services, jobs and that pays taxes to support government activities?

Viewed in that light, a CEO running a successful business deserves more than contempt and resentment.

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