Guest article written for AllAboutAlpha.com – the official publication of the Chartered Alternative Investment Analyst (CAIA) Association
Originally Published at: http://allaboutalpha.com/blog/2013/06/17/the-truth-about-executive-pay/
There is little doubt that we are facing tough times for the economy. Rising unemployment, austerity and many other factors have meant that the average person feels considerably worse off than at any other time in recent history. It is unsurprising therefore, that we are witnessing a backlash against senior executives (in many industries) who are taking home multi-million dollar pay packages.
From board actions and shareholder revolts, to grassroots protests and the Occupy Movement- hundreds of thousands of people have rallied together against what they perceive as being the manifestation of gross inequality. “Former fashion jewellery saleswoman Rebecca Gonzales and former Chief Executive Officer Ron Johnson have one thing in common: J.C. Penney Co. (JCP) no longer employs either…” wrote Bloomberg in April 2013 adding, “The similarity ends there. Johnson, 54, got a compensation package worth 1,795 times the average wage and benefits of a U.S. department store worker when he was hired in November 2011, according to data compiled by Bloomberg. Gonzales’s hourly wage was $8.30 that year.” Even leading academics have joined the debate. Interviewed in the article referenced above, Roger martin (dean of the University of Toronto Rotman School of Management) states, “When CEOs switched from asking the question of ‘how much is enough’ to ‘how much can I get,’ investor capital and executive talent started scrapping like hyenas for every morsel… It’s not that either hates labour, or wants to crush their lives. They just don’t care.”
To learn more about the true state of executive compensation, I spoke to Steven N. Kaplan who is Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance at The University of Chicago Booth School of Business. He was named one of the top twelve business school teachers in U.S., Business Week, 1994, and one of the top four business school entrepreneurship professors in U.S., Business Week, 1996. In 2012 after extensively researching executive pay and compensation, Prof. Kaplan published a paper titled: Executive Compensation and Corporate Governance in the U.S.: Perceptions, Facts and Challenges Continue reading