CEOs worth every million

Lisa Napoli Jan 19, 2007

TEXT OF INTERVIEW

LISA NAPOLI: So many Razrs, so little profit. Record sales this holiday season didn’t rescue cell phone giant Motorola. The company said this morning fourth quarter profits were down 48 percent. Now does this mean Motorola’s star CEO Ed Zander gets his $4.5 million annual paycheck slashed? Not likely. I talked to Edward Carr of the Economist this morning. He thinks all those CEOs deserve the big bucks they earn.

EDWARD CARR: The really interesting thing about pay is that the stable relationship between average managers’ pay and average workers’ pay, which is about 40, suddenly started rocketing up in the 1980s and 1990s and it reached a peak of 120. So something really amazing happened to pay. And most people say that it was all because of bad governance. Executives started to dominate boards and take money out of the company and the whole thing’s really a scandal and a scam. I think that’s wrong. I think in fact that executives are paid more because their value to companies increased and it’s an expensive market certainly, but it is a market. Actually the typical pay is about $8 million. Now that’s a lot of money, don’t get me wrong . . .

NAPOLI: Yeah

CARR: But it’s not as much as say a top trader who might earn $40 million.

NAPOLI: Let me ask you this: I’m worth a lot of money, but I’m not paid a lot of money. So how come that doesn’t work for the average worker?

CARR: I’m sure there are a lot of talented people out there who think they could be executives but their very small differences in talent, when you multiply them across the billions and billions of dollars that a chief executive controls are worth a lot of money.

NAPOLI: Edward Carr’s story about executive pay called In the Money is in this week’s edition of the Economist.

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