Executive Compensation

The Globe & Mail published their most bone-headed editorial ever this week. The logic was so assinine that I wonder if they were trying to undermine their own argument.

It went like this: People are concerned about executive compensation. That concern was justified when CEOs didn't, on average, make less bucks last year after share prices fell - so people are saying there's not enough of a link between pay and performance. But wait! "The good news" the Globe says, "is that such a link is becoming the holy grail of compensation design."

At which point thoughtful readers everywhere started thinking: Well that's not right. Canadian CEOs weren't responsible for the biggest financial crisis ever to strike the five inner planets. When crisis hits, do we not need the best CEOs we can get to protect us? Performance metrics are a pretty sucky idea.

Of course performance metrics are just one aspesct of a huge issue of behavior so unethical it should have serious jail time attached. The Globe might have mentioned that fifty years ago, CEOs made 20 times what frontline employees made while today they make 300 times frontline wages. They might have cited the growing cries to create some legal protection for shareholders and employees, say by reducing the ability of the guys at the top to remunerate themselves, or by putting firm limits on how much they can suck the corporations dry... viz a maximum wage. Noone would expect the Globe to say that as long as the CEO-director cabal continues to run major corporations as a giant cookie jar for their own super-sized enrichment, we're not living in capitalism but just a corrupt oligarchy... but it seems rather pertinent too.

I'm not saying there's anything wrong with making $919M in one year, like the CEO of Och-Ziff Capital Management. There are situations in which making a bundle is perfectly ethical. For example, if I were ever to publish my collection of poems about bi-valve evolution, it would of course sell many copies and I would become very wealthy. If I got $2 per book in royalties, I might make, what... about $200 million in the first year. (I'm not completely acquainted with the income of poets but it's something like that.) I don't think there's any issue of unfairness in that income - after all it's volume that caused the figure to be so high.

But the incestuous little community of CEOs and directors, who set their own remuneration levels and move from company to company scratching each other's backs, is hoovering up vaster and vaster percentages of profit purely because they have the power, balls and lack of shame to allow them to grab other people's money. I'm not saying that they aren't qualified or that they shouldn't be well compensated, just that (1) they shouldn't have the nearly-unfettered ability to take as much as they like and (2) no-one deserves labor income in excess of $100,000 a week.

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