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Via Christian Sarkar, Too Many Turkeys, The Economist:
Christian Sarkar asks, can we outsource the CEO to a low-cost country? That is exactly what will happen at the ludicrous levels pay has risen to. If the United States were to lock into a payscale that is unsustainable globally US companies will be no be able to compete. My guess is plenty of people in the USA will be glad to compete against the brooks brothers bureaucrats but if not, others will.
The excesses are so great now they will either force companies to:
As long as the pay packages were merely large, and didn’t effect the ability of a company to prosper that could continue (slicing up the benefits between the stakeholders is not an exact science). The excesses recently have become so obscene as to become unsustainable.
Companies will not be able to compete if they allocate huge portions of the benefits provided by the operations of the company to the few sitting on top of the bureaucracy. On the other hand large pay for Directors alternatively is sustainable as it hardly impacts the overall results of the company directly. The poor performance of boards that may well be caused by directors feeling more obligated to the top bureaucrats for their large pay is a different matter.
Companies that provide huge benefits to those few at the expense of investors, the rest of the employees, customers, suppliers… will find the other stakeholders find it better to go elsewhere and interact with those companies that are more equitable.
Because those that are taking excess portions of the benefits of corporations have power to determine whether those companies stop providing excessive benefits to themselves I am sure many will slowly go out of business all the while blaming other factors. With the current system the most likely force to stop such abuse are those representing the investors.
Those taking excessive gains for themselves have learned how to block the interests of the owners fairly effectively, turning boards into pawns of the top bureaucrats instead of the owners. Those bureaucrats have advantages in the battle to allocate the gains fairly but I believe they are overplaying that advantage and over time the tide will change. But time will tell what actually happens.
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June 27th, 2006 at 6:48 am
it will take quite a deal of reducing these ridiculous “pay” packages to reach some sense of decency…
October 4th, 2006 at 8:42 pm
[...] Related: Excessive Executive Pay - Warren Buffet on ridiculously out of line executive compensation - Excessive CEO Pay - More on Obscene CEO Compensation by curiouscat Tags: Management, Deming Permalink to: More on Overpaid CEO’s [...]
February 7th, 2007 at 9:06 am
[...] This is the kind of data you would expect if people are the organization’s most important resource. If instead senior management thinks the company exists to fund their lavish lifestyle and only needs to do other things like provide value to customers, reward investors [...]
June 11th, 2007 at 12:21 pm
I continue to tilt at the robber barron CEO pay packages. Hopefully, at some point, the people approving these obscene pay packages can be shamed into stopping or replaced by people with some sense of decency…
March 19th, 2008 at 11:18 pm
Excessive executive pay is both a sign of awful ethics and a driver of bad management action. I add two new diseases of western management to Dr. Deming’s 7 deadly diseases; massively overpaid executives is one …
July 8th, 2008 at 9:53 am
In 1977, he was mainly worried about “the public” rising against excessive executive pay when there was no systemic problem… When the system broke, he then spoke out against unjustified looting of corporate treasuries
November 20th, 2008 at 11:33 am
I must say I am amazed at how brazenly those participating in looting companies from within are; and how it is accepted. It is a shame such unethical behavior is tolerated…
November 21st, 2008 at 8:42 am
We all know monetary bonuses can influence behavior. The problem is the type of behaviors that result. Huge bonuses, for example, create huge incentives to risk the future of the company for the chance at a huge bonus for the executive…
March 7th, 2009 at 3:53 pm
[...] See my post from 2005 on the problems massively excessive pay will result in: “The excesses are so great now they will either force companies to take huge risks to justify such pay and then go bankrupt…” [...]
April 6th, 2009 at 11:54 pm
The incredible failure of the culture as a whole, that has enabled corporate cleptocracy to become the dominate culture of so many of our companies, is very disheartening…