Comments on: CEO Pay – Is It Lake Wobegon Run Amok?

By: Allen

Allen — Sun, 08 Apr 2007 21:09:36 +0000

There's a wicked commentary about CEO compensation at: http://cantankerousconsultant.blogspot.com/2007/04/save-salary-movement-begun-by-corporate.html

By: Charles H. Green

Charles H. Green — Wed, 14 Mar 2007 04:55:25 +0000

Wait a minute. S.M. Mehdi Hassan at least admitted he hadn’t read the article before commenting. Did anyone else read it either?

Click through and check it out. The researchers say that their article was inspired by–inspired by–the claim of the Lake Wobegon effect. They then modelled it. Here is their ringing conclusion:

“The three key assumptions of the Lake Wobegon effect are not sufficient to guarantee upward distortions in pay.”

Doesn’t sound like a “case proven” endorsemeent to me. They go on to talk about “short-termism” as a factor affecting high CEO pay, and suggest it may be a particularly American disease.

Interesting, though it doesn’t really seem to talk about “Lake Wobegon Run Amok” to me.

By: laurence haughton

laurence haughton — Thu, 08 Mar 2007 21:08:44 +0000

And the compensation could be invisible – like buying oodles of products from a director’s company (or client) instead of a better priced competitor.

By: Mike

Mike — Thu, 08 Mar 2007 16:23:26 +0000

“Follow the money” is spot on! Warren actually addressed that in the letter:

“In selecting a new director, we were guided by long-standing criteria, which are that board members be owner-oriented, business-savvy, interested and truly independent. I say “truly” because many directors who are now deemed independent by various authorities and observers are far from that, relying heavily on directors’ fees to maintain their high standard of living. These payments, which come in many forms, often range between $150,000 and $250,000 annually, compensation that may approach or even exceed all other income of the “independent” director. And – surprise, surprise – director compensation has soared in recent years, pushed up by recommendations from corporate America’s favorite consultant, Ratchet, Ratchet and Bingo. (The name may be phony, but the action it conveys is not.)”

By: Gary Bourgeault (managersrealm.com)

Gary Bourgeault (managersrealm.com) — Thu, 08 Mar 2007 07:48:29 +0000

I’ve always like Buffett’s insight into management compensation. It’s pretty simple: pay them for their performance. The idea of talking about whether a CEO is paid a certain number of times the salary of a worker has no bearing on anything at all. That’s just somebody coming up with their personal formuala.

You never hear shareholders complaining about compensation when the CEO makes them money from year to year.

By: laurence haughton

laurence haughton — Wed, 07 Mar 2007 20:55:12 +0000

As a child of the Watergate era I always try remember Deep Throat’s advice, “Follow the money.” I’ll bet directors get something for themselves (or their firms) when they vote for a “hard to justify” increase. And Warren is the skunk at the garden party with all his logic and fair dealing.

By: S.M.Mehdi Hassan

S.M.Mehdi Hassan — Wed, 07 Mar 2007 20:22:48 +0000

Rob,
YOU ARE THE MAN!! I just read about the wobegon effect. If the companies think that by keeping their CEO’s payment on the top ten CEO payments of the year would give them a strong image then they are totally wrong. They are just wasting shareholders’ money. I did not have time to read the research paper but I downloaded it and save in my hard drive to read it when I get time.