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Sunday, April 24, 2011

Executive Compensation

In 1976, the average CEO made 36 times as much as the average worker.   By 1993, the average CEO was paid 131 times as much as the average worker.   And by 2008, the average CEO was paid 369 times more than the average worker.*
Salary adjustments for CEO's are based on recommendations from compensation committees and compensation consulting firms (called "Ratchet, Ratchet and Bingo" by Warren Buffett), which compare one company's overpaid executive to other companies' overpaid executives.  The recommendations are enacted by Directors who were nominated by committees controlled by company management.

It is a simple process; quid pro quo.   Management chooses directors, directors reward management, and compliant directors may be chosen to serve on other boards.  It is institutionalized corruption.

Really, now.  Isn't it time that shareholders were allowed (or required!) to nominate candidates for the Board of Directors for publicly owned companies?

* Predictably Irrational, Dan Ariely, 2008.
Also, please see my previous post about corporate governance.


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