What is it About a One Dollar an Year Compensation that Attracts some of The Most Powerful CEOs in Corporate America? Unfortunately, The Answer isn’t what it is Perceived to be.
In a mad sprint towards the mirage of creating just about everything out of nothing, the US financial system managed to pull off a crisis, which cost the world more than $2 trillion in loses. The value of these losses keeps changing for the worse every month as more homes come under foreclosures and financial institutions around the world write down their holdings based on subprime assets. But what doesn’t change is the audacious phenomenon of hefty pay cheques that investment bank CEOs continue to take home. According to a research commissioned by The Wall Street Journal, total compensation of publicly listed Wall Street banks grew by 5.7% to hit a record $135 billion in 2010. Unfortunately, regulators and watchdogs are still quite listless.
During an interview, David McCormic, who was the Under Secretary of the Treasury to the Bush Administration went on record stating that he “would not support legal controls over executive pay”. As amusing as it may sound, Scott Talbott, Chief Lobbyist, Financial Services Roundtable, is comfortable with the level of compensation in the financial service industry because he believes that “Wall Street has earned it!” Availability of extensive literature on the subject doesn’t help disguise the disconcerting reality either – executive compensation continues to be one of the most debated and hallowed corporate issues in these contemporary times.
CEOs themselves need to realise the negative fallouts of an unjustifiably huge package on their performance and consequently on their careers ahead – a fact proven by various studies. A research undertaken by Graef Crystal in 2009 (a veteran in executive compensation consulting) shows that “there is no relationship between CEO compensation and shareholder returns”. In December 2009, three professors at the University of Utah and Purdue University commissioned a study titled Performance for pay? The relationship between CEO incentive compensation & stock price performance. The report analysed all NYSE, AMEX and NASDAQ firms listed on the Compustat Execucomp Database and Compustat Annual Industrial files from 1994-2006 and concluded that “industry and size adjusted CEO pay is negatively related to future shareholder wealth changes.” They proved that firms that overpay their CEOs earn negative abnormal returns over a five year period.
Amidst all the hue and cry over why these CEOs need to be paid so much, there are some top honchos who settle down for a mere dollar as their fixed annual compensation and are also referred to as one dollar CEOs. At hindsight, that comes across as the ultimate benchmark on accountability, commitment and sincerity. But on closer examination, matters are not really what they seem to be.
During an interview, David McCormic, who was the Under Secretary of the Treasury to the Bush Administration went on record stating that he “would not support legal controls over executive pay”. As amusing as it may sound, Scott Talbott, Chief Lobbyist, Financial Services Roundtable, is comfortable with the level of compensation in the financial service industry because he believes that “Wall Street has earned it!” Availability of extensive literature on the subject doesn’t help disguise the disconcerting reality either – executive compensation continues to be one of the most debated and hallowed corporate issues in these contemporary times.
CEOs themselves need to realise the negative fallouts of an unjustifiably huge package on their performance and consequently on their careers ahead – a fact proven by various studies. A research undertaken by Graef Crystal in 2009 (a veteran in executive compensation consulting) shows that “there is no relationship between CEO compensation and shareholder returns”. In December 2009, three professors at the University of Utah and Purdue University commissioned a study titled Performance for pay? The relationship between CEO incentive compensation & stock price performance. The report analysed all NYSE, AMEX and NASDAQ firms listed on the Compustat Execucomp Database and Compustat Annual Industrial files from 1994-2006 and concluded that “industry and size adjusted CEO pay is negatively related to future shareholder wealth changes.” They proved that firms that overpay their CEOs earn negative abnormal returns over a five year period.
Amidst all the hue and cry over why these CEOs need to be paid so much, there are some top honchos who settle down for a mere dollar as their fixed annual compensation and are also referred to as one dollar CEOs. At hindsight, that comes across as the ultimate benchmark on accountability, commitment and sincerity. But on closer examination, matters are not really what they seem to be.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
