Executive Compensation

05/28/2015 08:41 am ET | Updated May 28, 2016

CEOs Should Lead On Pay

Five years ago, when excessive corporate executive compensation first emerged as a controversial political issue, the Dodd-Frank legislation required corporations to permit shareholders to vote on front office pay. It was assumed that indignant investors would rein in excessive compensation, but the assumption was wrong. Last year shareholder support for executive pay practices at the 500 largest companies was 95 percent. Not surprisingly, the compensation of the average corporate CEO rose 12 percent last year.

Nothing has changed. The only limit on the ability of top CEOs to rake in more money is their own personal avarice, which in some cases apparently has no limit. At public companies with market values over $1 billion, the average pay for the 200 best paid chief executives this year is worth $22.6 million, topping last year's average of $20.7 million. The winner of last year's CEO sweepstakes was David M. Zaslov, chief executive of Discovery Communications who raked in $156 million.

At a time when our economy is sluggish and millions of working Americans are struggling to make ends meet, it is unseemly for the lucky few at the top of the corporate pyramid to be taking conspicuous advantage of their power. According to the AFL-CIO's Executive Paywatch website, there is a 331-1 wage gap between the typical CEO of a large public corporation and the average employee.

In a civilized society, leaders at all levels - political, civic, and business - are expected to behave in a responsible manner, or at least should be. One of the great challenges facing our society today is the huge and expanding gap between the wealthy and the poor. This is an emerging political issue that will have an impact on elections and cultural values. Business should lead in advocating actions and policies that improve opportunities for everyone.

In fairness, it is unfair to tar all corporate CEOs with the same brush. The embarrassing pay numbers are by and large restricted to the largest corporations. All told, there are about 250,000 corporate CEOs in the country, most of them leading small and mid-sized firms. According to the Bureau of Labor Statistics, their average compensation is $178,400, making a more reasonable gap of 5-1 between them and employees, a level that seems reasonable given the responsibilities of running a company.

It's the big kids on the block who seem to be out of control. The biggest problem with this pell-mell money chase is that it tempts CEOs into short-term thinking because their pay is largely based on stock performance. This leads them to do unwise things such as buy back their own stock, cut back on R&D, reduce capital investment and outsource abroad. The worst part is that this trend retards economic growth which hurts everyone, especially those at the bottom.
It would be far better for business and our country if corporate CEOs would curb their compensation appetite in favor of long term thinking. Part of that long range thinking should include how they can best help their employees compete in today's world by empowering them with more responsibility, increasing their general and technical skills, providing incentive compensation and making them partners in community initiatives like cleaning up the environment. After all, we are all in this together.