In fact, there’s strong evidence that, far from being paid too much, many CEOs are paid too little. Not only do the top managers of multibillion-dollar corporations earn less than basketball players (LeBron James of the Cleveland Cavaliers makes $26 million), they are also outpaced in compensation by financial impresarios at hedge funds, private equity firms, and investment banks. Should we care? Yes. If other positions pay far more, then the best and the brightest minds will be drawn away from running major businesses to pursuits that may not be as socially useful – if not to the basketball court, then to money management. <\/p><\/blockquote>\n
They start with the observation that big businesses in recent years have been hiring more outsiders – that is, CEOs who don’t work for the company that is bringing them on, or even in the same industry.
\n…
\nGeneral managerial skills like finance, marketing, and strategy are increasingly more important than firm-specific skills, such as understanding the drug pipeline of a pharmaceutical company or knowing how to negotiate with a steel company’s suppliers, unions, and big customers. In the 1970s, outside hires accounted for 15 percent of all new CEOs; in the 1980s, there was a small increase to 17 percent; and in the 1990s, a larger jump to 27 percent.<\/strong> <\/p><\/blockquote>\nCorporations are hiring based on skills and talents of the CEO as opposed to pedigree or experience. This approach is consistent with our hiring process too. Today’s market requires a broad range of abilities as opposed to internal or industry-specific experiences.<\/p>\n
As markets grow increasingly globalized and information – thanks to the Internet – becomes more accessible, it’s not hard to see why boards of directors are going outside their companies and industries to find CEOs. <\/p><\/blockquote>\n
Finally, the one piece of information that has always captured my attention regarding people who are upset over CEO compensation:<\/p>\n
An able leader has an enormous impact on the success of a business. Certainly, some excessive corporate pay packages are outrageous, as Bogle and other critics claim. But even more outrageous is a system where Dr. Phil makes more than twice as much as Jeffrey Immelt, CEO of GE, the world’s most valuable company; where Jessica Simpson makes more than the average earned by the CEOs of America’s 500 largest corporations; and where hedge fund managers who make the right bet on the yen-dollar relationship can take home ten times as much as the head of the nation’s largest exporter. <\/p><\/blockquote>\n
Again, I’m all for Dr. Phil making as much as he can in the marketplace. But where is the outcry over his compensation? Or LeBron James? Some CEO packages are excessive but the market corrects them over time. A strong CEO brings a tremendous return on investment that average investors like myself can be a part of by owning stock in that company. That income possibility, to me, is far more interesting than watching LeBron James make $26 million a year.<\/p>\n","protected":false},"excerpt":{"rendered":"
I am all for people making as much as they can in their careers which is why I do not understand the emotional attachment to CEO pay. If those CEOs can make that kind of money, more power to them. It doesn’t bother me that Bob Nardelli made big money at Home Depot – good for him. If I could make that type of money I would. Now you know where I stand, check out this article from American.com – Why Do We Underpay Our Best CEOs? That’s right – “underpay.” The article is a thorough explanation of the trends occurring in CEO hiring due to the national witch hunt… Read More<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"bgseo_title":"","bgseo_description":"","bgseo_robots_index":"","bgseo_robots_follow":"","_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"jetpack_post_was_ever_published":false},"categories":[20,5],"tags":[],"class_list":["post-631","post","type-post","status-publish","format-standard","hentry","category-compensation","category-trends"],"jetpack_publicize_connections":[],"jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p5Oho-ab","jetpack-related-posts":[{"id":345,"url":"http:\/\/selectmetrix.com\/blogs\/2006\/10\/pay-for-performance\/","url_meta":{"origin":631,"position":0},"title":"Pay for Performance","author":"Lee Fratzke","date":"October 6, 2006","format":false,"excerpt":"At Select Metrix, we constantly preach that compensation plans should be, in part, tied to an individual's performance. So when I was reading through my newsletters and RSS feeds, I was amazed to find stats from several different articles and feeds. First off, CEO turnover is up. The numbers show\u2026","rel":"","context":"In "Compensation"","block_context":{"text":"Compensation","link":"http:\/\/selectmetrix.com\/blogs\/category\/compensation\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":474,"url":"http:\/\/selectmetrix.com\/blogs\/2006\/12\/ceo-trend\/","url_meta":{"origin":631,"position":1},"title":"CEO Trend","author":"Derrick Moe","date":"December 1, 2006","format":false,"excerpt":"I'm a fan of Anthony Meaney's blog over at Recruiting.com. He has a great riff today on an interesting trend - publicly traded company CEOs leaving to join privately held equity firms. The reason from Anthony: Private equity firms are not publicly traded and are not beholden to shareholders, activists,\u2026","rel":"","context":"In "Compensation"","block_context":{"text":"Compensation","link":"http:\/\/selectmetrix.com\/blogs\/category\/compensation\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":412,"url":"http:\/\/selectmetrix.com\/blogs\/2006\/11\/the-cure-for-ceo-turnover\/","url_meta":{"origin":631,"position":2},"title":"The Cure for CEO Turnover","author":"Derrick Moe","date":"November 1, 2006","format":false,"excerpt":"Honestly, I just came across this article - Women CEOs Experience Longer Tenures, Faster Growth - as a follow up to my previous post. This study is from a limited sample of Massachusetts-based companies with an average size of $54M\/year revenue and 120 employees. Not huge, but sizeable companies nonetheless.\u2026","rel":"","context":"In "Trends"","block_context":{"text":"Trends","link":"http:\/\/selectmetrix.com\/blogs\/category\/hiring\/trends\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":1452,"url":"http:\/\/selectmetrix.com\/blogs\/2008\/03\/ceos-are-not-overpaid\/","url_meta":{"origin":631,"position":3},"title":"CEO’s Are Not Overpaid","author":"Derrick Moe","date":"March 4, 2008","format":false,"excerpt":"How is that for a title?\u00a0 Before I get flamed on this topic, let me pull some excerpts from a Human Resource Executive Online article (emphasis mine): A recent study conducted by DolmatConnell & Partners debunks the myth of runaway executive pay. The findings of the study tell a much\u2026","rel":"","context":"In "Compensation"","block_context":{"text":"Compensation","link":"http:\/\/selectmetrix.com\/blogs\/category\/compensation\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":461,"url":"http:\/\/selectmetrix.com\/blogs\/2006\/11\/ceos-and-shareholder-value\/","url_meta":{"origin":631,"position":4},"title":"CEO’s and Shareholder Value","author":"Derrick Moe","date":"November 28, 2006","format":false,"excerpt":"A quick story from the Pioneer Press - Early exit cuts Stroucken pay package. The departing CEO of H.B. Fuller located north of St. Paul is taking a compensation package with him worth $18.5 million. The article simply states: The news release noted Stroucken is receiving $4 million less than\u2026","rel":"","context":"In "Compensation"","block_context":{"text":"Compensation","link":"http:\/\/selectmetrix.com\/blogs\/category\/compensation\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":938,"url":"http:\/\/selectmetrix.com\/blogs\/2007\/05\/that-giant-sucking-sound-from-the-newspaper\/","url_meta":{"origin":631,"position":5},"title":"That Giant Sucking Sound From The Newspaper","author":"Derrick Moe","date":"May 19, 2007","format":false,"excerpt":"The Pioneer Press offers up an utterly worthless piece of agenda journalism regarding CEO pay.\u00a0 At the risk of upsetting the Red Bird, I have pulled some quotes from You're fired! Take these millions and go\u00a0(all my emphasis): If 3M ever fires George Buckley, one of Minnesota's highest-paid CEOs, there\u2026","rel":"","context":"In "Compensation"","block_context":{"text":"Compensation","link":"http:\/\/selectmetrix.com\/blogs\/category\/compensation\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"jetpack_featured_media_url":"","_links":{"self":[{"href":"http:\/\/selectmetrix.com\/blogs\/wp-json\/wp\/v2\/posts\/631","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/selectmetrix.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/selectmetrix.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/selectmetrix.com\/blogs\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"http:\/\/selectmetrix.com\/blogs\/wp-json\/wp\/v2\/comments?post=631"}],"version-history":[{"count":0,"href":"http:\/\/selectmetrix.com\/blogs\/wp-json\/wp\/v2\/posts\/631\/revisions"}],"wp:attachment":[{"href":"http:\/\/selectmetrix.com\/blogs\/wp-json\/wp\/v2\/media?parent=631"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/selectmetrix.com\/blogs\/wp-json\/wp\/v2\/categories?post=631"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/selectmetrix.com\/blogs\/wp-json\/wp\/v2\/tags?post=631"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}