$1 a year men?

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.