Thanks for your note and the kind words - WKU



thanks for your note and the kind words. I believe many of the cases where ceos rake in big pay during lean times are simply a matter of them realizing stock gains from previous years (which weren't all erased by the subsequent stock decline). I'm not sure how you avoid that, unless you restrict a ceo from selling stock until he leaves the job (which may not be a bad idea). You're right about the corrosive effect: All surveys show the single biggest factor in employee happiness (aside from pay) is belief that those at the top are making good decisions. And a ceo getting a big payout when the company is hurting creates an image that he's only out for himself and making decisions for his own benefit only.

In fact, i didn't have room it in my column, but I think there's a lot of work that still needs to be done in getting the incentives right in ceo pay. The WSJ had an alarmed story about CEOs getting dividends on "phantom shares" (ie unexercised options etc) but that's exactly what preserves their incentive to pay dividends when otherwise they'd naturally want to see all profits capitalized in the stock price instead. On the other hand, letting CEOs pick the date at which their options are priced? That's crazy, because it gives them an incentive to talk down the share price in the short term. thanks for your note. holman

-----Original Message-----

From: brian goff [mailto:brian.goff@wku.edu]

Sent: Wednesday, May 03, 2006 2:30 PM

To: Jenkins, Holman

Subject: CEO Pay

Mr. Jenkins,

I very much enjoy and look forward to your columns each week. You

display a sound grasp of economics coupled with extensive knowledge of

business practice and law. My department head and I both use your

columns extensively in conversations and classroom settings.

As usual, your piece on CEO pay today, and others in the past, hit

the right notes. Your emphasis on the ex post complaints v. a

forward-looking view of CEO contractual relations is right on the mark.

The point about "agency" being an ubiquitous organizational issue and

fact of life is vastly underappreciated.

I am interested in your take on particular element of CEO pay that I

find the most difficult to reconcile or explain to may non-econ friends,

that is, the path of CEO pay during poor performaning times for a

company. I recognize CEO's do face incentives to spur performance

whether in reduced option or stock values or the risk of termination.

The potential for lost compensation in the form of these "opportunity

costs" are real. Nonetheless, when a CEO's (or University President for

that matter) direct compensation increases (sometimes by substantial

amounts) during periods where rank and file employees are being let go

or experiencing no increase in direct compensation, the sense that the

economic rules tthat apply to their paycheck but not to the CEO is

strong. In fact, in talking with individuals in companies like these,

it seems that such lack of "sharing of the pain" is one of the most

erosive to employee morale, and I have wondered why more companies do

not address the issue in the executive pay policies. Maybe more

companies do, and I'm just swayed by a few anecdotes. Any thoughts?

Thanks.

Brian Goff

************************************

Brian Goff

Distinguished University Professor

Dept. of Economics/Ford College of Business

Western Kentucky University



................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download