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.