I've got those nobody loves me, everybody loathes me, I'm just a millionaire CEO blues
By Lee Russ
Friday, February 02, 2007 at 05:36 PM
Hey, if Neil Cavuto can pen an ode to the unappreciated rich, then why can't National Review's Rich Lowry wax eloquent about the poor, unappreciated CEOs of the world?
Leave the CEOs Alone
Money is good.
By Rich Lowry
High executive pay hasn't quite reached that status of a bipartisan "crisis," but it's approaching it. The Democratic senator from Virginia, Jim Webb, fulminated against it in his response to President Bush's State of the Union address the other day. Bush himself, in a "State of the Economy" speech on Wall Street, urged corporate boards to "step up to their responsibilities" to better manage CEO pay
Once something officially becomes a crisis, that means that it is certain there will be a raft of foolish proposals to address it, and sure enough, legislative measures to crimp corporate pay already are bubbling up. There are, of course, some abuses in CEO compensation packages, but the broad picture justifies the truism, "You get what you pay for." Skyrocketing CEO pay has coincided with two decades of wondrous economic performance, during which the value of all stocks traded in the U.S. rose from $1.3 trillion in 1981 to more than $15 trillion in 2000.
The scolds of corporate pay yearn, in effect, for the bad old days of the 1970s. Then, CEOs were paid relatively small amounts, but corporations weren't particularly innovative and were run with little concern for the interests of shareholders. The hostile-takeover revolution of the 1980s changed all that. Buyout firms sought out undervalued companies, which they bought and turned around. This required top-notch managers who had to be rewarded handsomely for their performance.
As The Economist magazine puts it, CEOs had been paid like bureaucrats; now they are paid like entrepreneurs. The key innovation was tying compensation to the value of the company's stock through executive stock-ownership plans. A CEO's pay, therefore, was directly related to his performance, and his interests brought into alignment with those of shareholders.
The number of people with the management skills, toughness, and imagination suited to running a large corporation is small, and competition for their services is fierce. They are going to be paid a lot of money, especially when a profit or loss of billions of dollars depends on how they perform.
CEOs might be paid extremely well, but they don't have easy jobs. Their performance is always evaluated by the inescapable taskmaster, the financial markets. When they are found lacking, they are canned -- witness Kevin Rollins at Dell, out as CEO after just two and a half years. CEOs last on average about six years in their jobs.
There are always examples of excess. The CEO of Home Depot, Robert Nardelli, stoked outrage when he left the company with a $200 million severance package. His contract was a relic of the bull market of 2000, but it was understandable that Home Depot had desperately wanted a highly regarded former GE executive. According to The Economist, one study "found that the appointment of 20 GE executives as chairmen of other companies between 1989 and 2001 led to an immediate share-price gain averaging $1.1 billion."
One theory says that corporate boards of publicly traded companies are too cozy with management, so they dole out excessive pay. This happens sometimes. But companies owned by private-equity firms with a direct stake in their success pay similarly large packages to entice and keep hard-charging CEOs. The market knows what it's doing here. Politicians don't.
Rich, Rich, Rich. What crap. How are many of these "entrepreneurial" CEO's doing business. Take his example of Rollins from Dell. Rollins ran the classic 21st century cost-cutting shop. Per a computer industry source:
Under Rollins, CEO for only two-and-a-half years, Dell tanked. Growth evaporated. Service went to hell. Dell lost its pricing advantage and its lack of retail channels has proved disastrous. The company had to recall four million laptop batteries.
Then there are the guys who made millions upon millions by simply backdating their stock options to favorable dates. And then there are the guys who cooked the books to present a picture of financial health until the CEO's could cash out; then look out below (see: Enron, WorldCom, Global Crossing, Sunbeam, and on and on).
As for the limited number of geniuses who can handle the job as CEO......take into account that Bush, Cheney, and, I believe, Rumsfeld, have all served as CEOs out there in the supposedly real world. Geniuses one and all.
And, if you happen to be a C-Span junkie, think of how many dunderheaded, underhanded, truth-challenged, glowering and bellowing CEOs you've seen testifying beforse one committee or another. Worth every penny, wouldn't you say, Rich?
Then again, maybe some of these guys really do seem like geniuses to Rich. Everything's relative.
Update [2007-2-3 17:29:37 by Lee Russ]:Here's a surprise: according to an Irish source [http://www.finfacts.com/irelandbusinessnews/publish/article_10008922.shtml],
PC giant Dell, which on Wednesday replaced its CEO Kevin Rollins with founder Michael Dell, is accused in an investor lawsuit of improper accounting in its longtime partnership with chip maker Intel, according to a report in Friday's edition of The Wall Street Journal. The US suit, which seeks class-action status on behalf of Dell shareholders, claims that Dell's profits were inflated by hundreds of millions of dollars in quarterly rebates from Intel that Dell failed to properly account for and disclose. The suit alleges that Dell was receiving as much as $1 billion a year in what the plaintiffs term as "secret and likely illegal" kickbacks by Intel to ensure that Dell use no other chip supplier.