Some More Comments on CEO Pay

15 Apr 2008

As an outsider (and a non-executive one at that) looking in, I can’t help but agree with Mark’s latest comments on CEO Pay. Obviously things are different in companies of 10,000+ employees and market caps north of $1 billion, perhaps that’s why I’ve been far more comfortable in start-up land.

Put another way, every hired CEO is looking to be in a position to look in the mirror , smile and tell themselves they have made it. They are living the American dream. The only way to do that is to grab as much equity equivalents as you can and do everything you can to get that stock price up as high as you can while periodically liquidating the stock and stuffing the cash in your bank account.

In my mind, it’s a game that CEOs can win in one of two ways.

1. Do a sufficiently good job at large company #1 so you can become CEO at larger company #2 (rinse and repeat)
2. Maximize individual equity (the so-called equity/lottery ticket zone) over the collective wealth of the organization (including those in the so-called cash zone)
3. Do both

It’s a simplistic model and I’m far from a CEO (just a pesky technology guy) so I can do nothing but speculate on the underlying motivations. That being said, the successful CEOs that we all hear and read about for the most part seem adept at #3, almost to the extent that their financial gains are often an afterthought. If it’s a matter of performance, equity should no doubt follow company successes.

Shareholders tend to ignore how much stock is given to management, they don’t ignore cash. Companies will always be a lot more stringent with their cash, whether its paid to the CEO or anyone else. CEO cash compensation will go way up, but total compensation will come way down. More importantly , CEOs getting paid huge sums in cash will stand out like a sore thumb when things arent going so well. They will be treated like everyone else in the cash zone and held far more accountable for their work.

Interesting thoughts. Accountability is king. Do a good job and you deserve to be recognized and rewarded appropriately, regardless of position.