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CEOs get a raise; average pay up 15 percent

Sam Palmisano, Chairman and former CEO aof IBM - and the second-highest paid executive in the U.S. - shakes hands with President Barack Obama at the White House in January. CEO pay rose 15 percent this year, according to a new report.

Jeremy Hobson: Now we come to CEO pay. The research firm GMI Ratings found that CEO pay is on the rise again. The compensation for running a company rose an average 15 percent last year - and 28 percent the year before that. The average CEO pay in the U.S. was nearly $6 million for a year's work. Our New York bureau chief Heidi Moore reports.

Heidi Moore: The highest-paid CEO in the country is Michael Johnson at Herbalife, which makes nutritional products. He made $89.4 million in 2011. IBM's Sam Palmisano and Edward Breen of Tyco made about $63 million each last year.

Is this some kind of CEO-payday arms race? Yes, as it turns out.

Charles Elson: Everyone is judged by how much everyone else is making.

Moore: That's Charles Elson, the director of the Center for Corporate Governance at the University of Delaware.

Even if peer pressure is a factor, what's wrong with getting insanely rich while running a company? Elson explained how these compensation packages are decided.

Elson: The process itself is unrelated to performance.

Moore: Oh. So I asked Lucy Marcus, who advises the boards of directors of companies, whether one person's labor can ever really be worth $89 million.

Marcus: Well, intuitively, I suppose one thinks not.

Moore: Both Marcus and Elson agree that part of the problem is that boards of directors are disconnected from reality.

In New York, I'm Heidi Moore for Marketplace.

CORRECTION: The photo caption has been corrected to reflect the correct title of IBM's Chairman Sam Palmisano.

About the author

Heidi N. Moore is The Guardian's U.S. finance and economics editor. She was formerly the New York bureau chief and Wall Street correspondent for Marketplace.
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