The National Center for Policy Analysis released a press release today on a paper released by executive compensation consultant Watson Wyatt Worldwide. In case you didn't know, executive compensation consultants are basically paid large amounts of money to justify paying CEOs and other managers even larger amounts of money. Here is the bulk of the release:
The current executive pay system -- the "pay-for-performance" model
-- is working effectively. In other words, say Ira Kay and Steven Van
Putten of executive compensation consultants Watson Wyatt Worldwide,
pay levels track corporate performance.
Their study, which
analyzed the relationship between the total return to shareholders
generated by companies and the related stock option compensation for
executives in the largest 1,088 companies in the United States in 2006,
found that executives in companies that performed well were rewarded
for that better performance
Other findings:
- While
executive compensation packages of 10 seem exorbitant, CEO pay is a
very small part of the overall cost structure of companies.
- Total
CEO pay in 2004 was just 0.09 percent of sales, 0.06 percent of market
capitalization and 1.3 percent of net income of companies.
- In
2006, CEOs in high-earning companies earned far more realizable pay --
the actual cash bonus paid the in-the-money value of stock options and
the real value of restricted stock, plus the payout from performance
plans -- than CEOs at companies with low earnings; the former also
earned 3 times as much in realizable long-term incentives (LTI).
I will tear apart the findings in-depth tomorrow, but for now notice that their findings completely lack context -
so what that the pay of one individual (the CEO) is a "small part of the overall cost structure" of the 1,088 LARGEST companies in the U.S. One would hope that an individual paycheck is not straining billion dollar companies, even if that paycheck is unjustifiably big.Also,
they point to the fact that high-earning CEOs outperform lower-earning CEOs; unfortunately, that says nothing about the absolute pay levels of either group.