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The San Jose Mercury News reports that some boards of publicly traded companies in Silicon Valley appear to have become more sensitive to shareholder concerns about runaway CEO compensation, apparently in reaction to a provisions in the Dodd-Frank Wall Street Reform Act of 2010. Two of these provisions, which apply to publicly traded companies, are 1) "say on pay": a requirement that a non-binding shareholder vote approving or disapproving of the CEO's compensation, be held at least once every three years; and 2) "CEO pay multiple": a requirement that the firm disclose the ratio of total compensation of the CEO to that of the firm's median employee salary or wage.
It's important to realize that shareholder votes are based on one share, one vote (rather than one person, one vote); the big shareholders, which tend to be deep-pocketed institutions such as mutual funds and pension funds, dominate the proceedings.
Oracle, biotech company Gilead Sciences, and pharmaceutical distributor McKesson, were mentioned by Mercury News as examples of companies based in Silicon Valley whose CEOs have taken pay cuts in the last year. McKesson's CEO lost the non-binding shareholder vote after Glenn Gray, a warehouse worker who made $16/hr, stood up at the shareholder's meeting to contrast the CEO's compensation with those of rank-and-file workers struggling to make ends meet. Gray was subsequently fired, but his job was later reinstated under court order. He says he has no regrets about speaking out:
My objective was not to tell shareholders [McKesson CEO] John Hammergren deserves this or that. I was speaking for the employees back on the plant who were afraid. You've got some really, really struggling people in Florida.
Recent "say on pay" shareholder votes at Salesforce and Yahoo! also attracted attention, but the dissidents opposing the CEO pay packages failed to win the majority of votes cast.
(Score: 3, Insightful) by ikanreed on Monday August 03 2015, @04:14PM
Even though the things you said probably helped share-holder returns, it hurts the people with the most money and ego. Get out!
(Score: 4, Insightful) by Thexalon on Monday August 03 2015, @04:26PM
The problem is that the people who are setting CEO salaries are all members of a "big club" (as George Carlin aptly put it), representing a very small number of rich individuals and staggeringly rich financial companies. The rich individuals mostly got rich by being C-level corporate executives, and C-level corporate pay scales are highly driven by the pay of people in other companies in the same position, so they have strong motivations to keep C-level corporate pay as high as possible to keep their own salaries high. The staggeringly rich financial companies are of course owned and managed by people in the same "big club", so their representatives naturally have the exact same motivations. And the people in the "big club" control a majority of the shares of just about every publicly traded corporation.
And that's even ignoring the basic quid pro quo of "You vote for my big raise, I'll vote for yours," which I'm sure happens all the time as well.
"Think of how stupid the average person is. Then realize half of 'em are stupider than that." - George Carlin
(Score: 0) by Anonymous Coward on Monday August 03 2015, @06:45PM
A recent illustration of the issue:
Like-minded friends get hired [dilbert.com]
Followed by
Too much truth [dilbert.com]
-- gewg_
(Score: 5, Insightful) by miljo on Monday August 03 2015, @04:31PM
Why anyone would agree to an exorbitant salary for a CEO is beyond me, since pay-for-performance is largely a myth.
http://www.bloomberg.com/bw/articles/2014-07-22/for-ceos-correlation-between-pay-and-stock-performance-is-pretty-random [bloomberg.com]
http://www.forbes.com/sites/susanadams/2014/06/16/the-highest-paid-ceos-are-the-worst-performers-new-study-says/ [forbes.com]
http://www.economist.com/blogs/graphicdetail/2012/02/focus-0 [economist.com]
One should strive to achieve, not sit in bitter regret.
(Score: 2, Interesting) by Anonymous Coward on Monday August 03 2015, @06:47PM
In 2013, the Swiss had an initiative that would have capped the ratio of worker pay to executive pay at 1:12.
It is unfortunate that Swiss workers see themselves (as USAians do, as pointed out by John Steinbeck) as temporarily embarrassed millionaires so, 65 percent were convinced that they should vote against that. [commondreams.org]
Before the 1 Percenters' successful propaganda campaign, only 46 percent of voters thought that extreme income inequality was a good idea.
-- gewg_
(Score: 5, Insightful) by bradley13 on Monday August 03 2015, @04:39PM
As TFS points out, these shareholder votes are pretty meaningless, because most of the shares are held by huge investment funds, where those responsible are busy siphoning off their own millions. Not "earning" but "siphoning off", because none of the big funds ever manage long-term performance better than a monkey with a dart board. Meanwhile, the investment funds, CEOs, politicians and other members of this cozy little circle all sit on each others' boards.
It's a sick situation, but it's not clear what can be done to fix it. Government regulation would be the right answer, except that the revolving-door means that the government is pwned - no regulations will ever be passed that actually restrict the practice.
What I find hard to understand is how these people can look in the mirror and think that they are worth that much money. Living in their echo chamber, I suppose they have no clue at all how the rest of us live. Can they imagine getting by on a fraction of a percent of their current income? Marissa Meyer of Yahoo, $40 million. Median salary at Yahoo $100k, or 0.25% of Ms. Meyer's compensation. Nuts...just nuts...
Everyone is somebody else's weirdo.
(Score: -1, Flamebait) by Anonymous Coward on Monday August 03 2015, @05:20PM
> none of the big funds ever manage long-term performance better than a monkey with a dart board
Define "big" and I'll prove you wrong with one counter-example.
(Score: 2, Informative) by pTamok on Monday August 03 2015, @05:39PM
Berkshire Hathaway is not a fund.
(Score: 0) by Anonymous Coward on Tuesday August 04 2015, @04:19PM
No shit. My challenge stands.
(Score: 2, Insightful) by tftp on Monday August 03 2015, @06:37PM
What I find hard to understand is how these people can look in the mirror and think that they are worth that much money.
Often when you hire a CEO you hire his Rolodex, his list of phone numbers, his influence. The candidate must be able to navigate Wall St. and the banks and the customers and the meetings and the SEC with equal ease. Look around - how many people do you see who can claim that? Note that it's not enough to be pushy enough to walk into a Wall St. office - you have to be known there, otherwise you will be just shown the door. How do you learn the ropes? It's not an easy process, even if you are born into it - just ask George 'W' Bush and his less than glorious management experience (of an oil company, not of the country.) Often a newcomer is growing within ranks, and is introduced into higher and higher circles. It is also necessary to have management and/or financial education - you do not want to hire a warehouse worker who earns $16/hr talking to boxes to be a CEO and conduct a earnings conference call with investors. You want someone who can call the bank and get a $20M credit line within ten minutes. People who can do all that are potential CEOs, Presidents and VPs.
You don't have to hire a high-flying CEO for your one-man window-washing outfit. You don't need to do that even if you grow to 20-30 people, or even a bit more. But once you start thinking about going public, you will need a CEO that can take your company public - and that requires certain experience. Unless, that is, you want the CEO to use your company as a practice sandbox. In that case he'll give you a good discount :-)
(Score: 2) by Thexalon on Monday August 03 2015, @07:59PM
Why is that CEO more valuable to a company than someone who can, by working with the CSO and CMO get $20M more in annual sales? Why is that CEO more valuable than the person who can work with the CTO and COO to cut operational and production costs by $20M annually? And why is that CEO more valuable than one that works with the head of R&D to develop a new product so groundbreaking that customers are saying "shut up and take my money" and investment banks are practically falling over themselves trying to win the chance to handle the IPO?
You mentioned George W Bush. Here's the thing: George W Bush was placed in positions of power in every single company he worked at for exactly one name in his Rolodex. A name that he had to do precisely nothing to create that relationship. And because those companies valued that one name, it didn't matter to George W Bush's future what George W Bush actually did.
"Think of how stupid the average person is. Then realize half of 'em are stupider than that." - George Carlin
(Score: 1) by tftp on Monday August 03 2015, @08:37PM
And because those companies valued that one name, it didn't matter to George W Bush's future what George W Bush actually did.
It is certainly one of the ways to become a CEO or land in a similar office. Requires no talent and no hard work, just needs the right connections. CEOs and CFOs and other C*Os all have children, don't they? Do they want their children to work in warehouses for $16/hr or, perhaps, they'd rather want them to sit on boards of a few companies for symbolic expense of time and for not exactly symbolic compensation? Where the socialites are going to come from? Clearly not from warehouses. It takes serious income and lack of job duties to sail on yachts and hold banquets. First generation millionaires are often workaholics; but their children, who are born into wealth, may prefer a different kind of life.
Why is that CEO more valuable to a company than someone who can, by working with the CSO and CMO get $20M more in annual sales?
Well, first he is not *more valuable*. Anyone who can get $20M more in annual sales should be also appreciated. To compare you look into such factors as personal contribution, replaceability, initiative vs. doing an assigned work, and such. A CEO is not a one trick pony - he can get a loan on Monday, he can buy land on Tuesday, he can hire a general contractor on Wednesday, he can present in front of investors on Thursday, he can negotiate a deal on Friday... Maybe he cannot develop a product that, if sold, gains the company those extra $20M/yr in sales, but he can assist in making it happen - he can personally hire an all-important specialist and give him extremely attractive compensation for what he knows. CEOs are very universal creatures, and they are used to putting out fires and sweet-talking to a customer almost at the same time. If an engineer screws up and damages the instrument that the customer paid $10M for, it's the CEO who will be apologizing to the customer. The buck always stops at his desk. Is he ovepaid? Probably, if his yearly salary is $10M. However a $1M for managing a company with 10,000 employees may be reasonable.
(Score: 2, Insightful) by nitehawk214 on Monday August 03 2015, @06:20PM
He wrote a book a while back, and to pump up sales and divert company money into his wallet, he issued a copy of the book to each of the thousands of employees at the company. I would call that embezzlement. Since I had retirement funds as company stock, I was not happy about it.
Source: I worked at McKesson during this time. I believe the book was used as kindling.
"Don't you ever miss the days when you used to be nostalgic?" -Loiosh
(Score: 0) by Anonymous Coward on Monday August 03 2015, @09:04PM
When will people understand why CEOs are paid regardless of performance? It has zero to do with doing the job, it has everything to do with not using the job for personal gain. The ridiculous CEO pay is essentially how private sector "fixed" the problem of corruption. If you pay a CEO more than he could steal by concocting some sort of scheme that would blow up int he share-holders' faces, you essentially isolate that type of a problem. A CEO who feels uncompensated can do a lot of damage to the company and it's market cap.
That right there is why they get paid so much, and why they will continue to be paid so much. Unless you have a magic wand that can turn all people into honest-do-gooders, please accept the fact that this is a natural reaction to human nature.