In large part because of tax policy, this AP story reports on the number of CEOs taking home token cash paychecks and making it up with stock options and other benefits. A lot of this has to do with a rather misguided congressional effort that limited tax deductibility for salaries over $1 million. Let me begin by saying that, besides letting private companies hand out whatever compensation packages stockholders and boards think proper, I think that salaries paid in private industry are not a public policy issue at all. When they lead companies to new heights, furthermore, its clear to me that CEOs deserve rewards that exceed $1 million. Although its not as lucid as simple cash payment, it strikes me that this $1 a year with lots of stock options method that the current tax code encourages is probably a good thing for many companies in many cases. It aligns the interests of management and stockholders very well. I think it will spread and probably should.
I’m still confused, however, as to why so many companies that perform poorly continue to pay their CEOs well. Particularly when a poorly performing company hires an insider, I see no reason why he or she should get a lot of money until AFTER the company turns around.
I don’t see any real harm in it–since stock prices telegraph it very well–but one would think that stockholders and boards would be a little more militant about companies that just decide to lie down and “harvest” market position. A former employer of mine has been doing this for years.
I guess it’s just the natural corporate life cycle but I do wonder why more companies don’t avoid it.