Tuesday, January 14, 2014

CEO Salaries: Getting what you pay for?

In our consumerist society there’s a saying that you get what you pay for. The assumption is that the more you pay for something, the more quality you get. A corollary is “the more you pay, the more you get.”

Recently, as I was pondering what CEOs are paid, I found myself applying the saying “you get what you pay for” to other worldly executive pay packages.

The latest jaw-dropper brought to my attention is Stephen Hemsley, CEO of United Health Care, who in 2013 made a cool $106 million. But the CEO roll call of infamy is long – very long.

So is United Health Care getting what it’s paying for. Is it getting what it wants or needs? Are its customers and providers benefitting?

Here’s what United Health Care is getting: a dispirited work force, terrible PR and a self-centered, morally blind leader who seems to be (or is) driven by greed and egoism.

The argument goes that CEOs are paid what the executive salary market will bear and the salary market decides what they are “worth.” Leave the market to do its work, we are told.

Let’s assume this simplistic analysis is correct that the market is “fair” and that the system isn’t rigged by similarly high-priced “salary consultants” beholden to the people paying them.

So the “free” salary market rules.

Should it?

Not if we take into account other “markets” which ought to have a say in the “ruling.”

Pay attention boards of directors, stockholders (institutional and individual) and elected officials.

One “market” growing in importance is the “social justice market” also known as the “gross inequity” market. Others, as already suggested, are the public relations market and the “fair corporate culture market.”

There are others such as the “highest and best use” market. What is the highest and best use, for instance, of Mr. Hemsley’s $106 million?

Dare we suggest that it’s clearly not Mr. Hemsley?

Somehow these markets need to be welded together so that obscene CEO salaries will not, indeed, can not, happen.

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Anonymous Chris said...

Before you get out the pitchforks and torches, can you source your $106M claim? I looked and the recent info i found covered only up to 2012:

$14M for 2012, of which $1.5M was salary. A look at the 1 yr chart for the company stock shows an almost 40% gain for the last 12 months:

If i'm a stockholder (and i'm not), i'm not complaining about that. You are talking about a company with 133K employees and a market cap of $75B.

Even if your numbers are right and you confiscated his entire purported $106M 'salary', dividing it up equally over the entire company would provide only $800 additional to each employee (before taxes).

9:11 PM  
Blogger Rick Seifert said...

First, Chris, apologies for not posting this comment sooner. I had neglected to see what was in my comment box for some time. The source, I'm almost certain, was the AFL-CIO Paywatch site, but it no longer shows the Hemsley figure. The closest I now find was his compensation (not salary) in 2010 of $101.96 million. According to Wikipedia, which cites Forbes, in 2011 he was named the highest paid CEO following a large gain in the value of his stock ownership.In 2011 he was named the highest paid CEO by Forbes following a large gain in the value of his stock ownership. In late 2011, Hemsley's most recent annual compensation was estimated by Forbes at $48.8 million.

My underlying question remains, Chris: Why do CEOs accept these exorbitant salaries unless it is to feed their out-sized egos? And why would a company want leaders who have such self-centered values?

9:36 AM  

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