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Is CEO Pay Justifiable by Performance? Yes : Ira Kay – NO : Edgar Woolard

Is CEO Pay Justifiable by Performance? Yes : Ira Kay – NO : Edgar Woolard. “What right have the rich to enjoy their warm palaces and mansions, dining plentifully on the best food from all the world, while the poor suffer from hunger and cold?” Book of Amos (Bible). Pop Quiz 3.

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Is CEO Pay Justifiable by Performance? Yes : Ira Kay – NO : Edgar Woolard

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  1. Is CEO Pay Justifiable by Performance?Yes: Ira Kay – NO: Edgar Woolard “What right have the rich to enjoy their warm palaces and mansions, dining plentifully on the best food from all the world, while the poor suffer from hunger and cold?”Book of Amos (Bible)

  2. Pop Quiz 3 1. Kay believes that corporate America is ruled by executive greed, fraud, and corruption and thinks that this is reflected in the many cases of over-the-top CEO pay. 2. Kay believes that the pay-for-performance model of executive compensation has not worked well in most instances. 3. Kay thinks that in most cases CEOs do not deserve the compensation they get. 4. Woolard discusses what he thinks are several myths about CEO compensation. 5. Woolard was CEO at Dupont.

  3. Answers Pop Quiz 3 1. Kay believes that corporate America is ruled by executive greed, fraud, and corruption and thinks that this is reflected in the many cases of over-the-top CEO pay. F 2. Kay believes that the pay-for-performance model of executive compensation has not worked well in most instances. F 3. Kay thinks that in most cases CEOs do not deserve the compensation they get. F 4. Woolard discusses several myths about CEO compensation. T 5. Woolard was CEO at Dupont. T

  4. Is CEO Pay Justifiable by Performance? Yes: Ira Kay – NO: Edgar Woolard Pay-for-performance vs internal pay equity

  5. Ira T. Kay YES • [Kay: exec compensation expert—Watson Wyatt] • Myth-busting • The main myth: “...corporate America ruled by executive greed, fraud, and corruption.” • “the myth of the failed pay-for-performance model” • In most cases this model has not failed; exceptions not rule • Real problem is not that CEOs get too much, but that non-executives get too little • Research supports + correlation CEO pay & company performance 241 • “the myth of managerial power.” • CEOs control boards and shareholders (false?) • (Is Dodd-Frank “regulatory overreach”? Will it cause “economic decline”)

  6. James Krohe, Jr. “The Revolution That Never Was” “wonders why U.S. workers have not taken to the streets to protest ‘the blatant abuse of privilege’ exercised by CEOs.” One “wonders why we have not yet witnessed calls for a revolution to quash the ‘financial frolics of today’s corporate aristocrats.'”

  7. Kay • “Not once have I been asked to comment on the vast majority of companies—those in which executives are appropriately rewarded for performance….” • But a lack of evidence is not proof of anything • Some CEO exceptions, but not the rule • “The problem…is not that CEOs receive too much performance-driven, stock-based compensation, but that non-executives receive too little.” • “…I have never witnessed board members straining to find a way to pay an executive more than he is worth.” • Again…this does not demonstrate anything • Empirical evidence; 1500 companies; 20 yrs • Pay-for-performance “sensitivity”; high + correlation • Okay, but check the source

  8. Kay—Are CEOs worth it? • “The relative scarcity of CEO talent….” • “Any influence that CEOs might have over their directors is modest in comparison to the financial risk that CEOs assume when they leave other prospects and take on the extraordinarily difficult task of managing a major corporation….” • Severance packages needed to “attract and retain talent.” • “goals of human-capital program”: attract, retain, and motivate CEOs • “The real threat to U.S. economic growth” is “regulatory overreach” and rejection of market forces re CEO pay. • “Instead of changing executive pay plans to make them more like pay plans for employees, we should be reshaping employee pay to infuse it with the same incentives that drive performance in the company’s upper ranks.” • “Within the context of a free-market economy, equal opportunity—not income equality by fiat—is the goal.”

  9. Edgar Woolard NO • CEOs are paid too much. 4 myths that support this unfair situation • 1. CEO Pay by Competition. (“Bull…CEO pay driven by outside consultant surveys ratcheting up pay.) • Better: “internal pay equity” at Dupont: 1.5 x exec VPs • 2. Compensation committees are independent (“double bull”) • Comp. com. should deal only with Board, not CEO or HR • Pay-for-performance would be good if it really worked • 3. Look how much wealth I created. (“joke”) • CEOs not control stock fluctuations • 4. Severance for failing (“worst of all”) • To boards: “Why are you doing that?”

  10. Postscript “What right have the rich to enjoy their warm palaces and mansions, dining plentifully on the best food from all the world, while the poor suffer from hunger and cold?”Book of Amos (Bible)

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