The New York Times recently published a list of CEO compensation for some US public companies. While it did not encompass all public companies, it did reflect that almost all of these CEOs earned more than $5 million in total compensation, with a substantial number earning this amount in salary.
I posted recently “Dimon In the Rough”, which raised the issue of limiting CEO annualized compensation to a maximum of $5 million if the CEO is a manager and not a controlling shareholder. The rationale was that Jamie Dimon purportedly did not know enough about JP Morgan Chase’s risk management and investments to avoid more than a $2 billion loss on derivative transactions. My post was not to berate Mr. Dimon, but to recognize that no CEO of a large corporation can know, or be responsible for every loss, including large losses. Similarly, no CEO is responsible for most outsized or even small corporate gains in equity or other measures for bonus and stock compensation tied to their company’s large capital base. The reality is that CEO’s are managers who accumulate hopefully expert advice from a variety of people and sources and make a decision. Occasionally, the positive gain may be attributable to their singular action (or inaction), but this is the exception. If you had each CEO do a daily timesheet it would be clear that the financial rewards do not match the CEO’s singular contributions.
CEOs do not do timesheets. If the corporation hires outside counsel in a case or transaction it generally expects timesheets which can be audited. The corporation does not want to waste corporate assets by paying outside experts millions of dollars, but it will pay a CEO millions merely upon review by the Board’s compensation committee. These committee’s benchmark what other CEOs get paid, so there is little likelihood of a reduction in compensation, even when “say on pay” is adopted.
Corporations will also outsource middle management or lower tiered workers as technology is used to create more efficiencies. An algorithm may be used to develop a more efficient process that can reduce the number of workers needed to complete a task. Employees are often asked to describe how they do the tasks that are their job requires so that software can be created to either improve how they do their job or to eliminate it. Not all reflects a linear logical process but entails intuition based upon years of experience, knowledge of people and markets. If CEOs were asked to similarly describe all that they do and have it memorialized daily in descriptive timesheets, could much of what they do be replicated through software? Could there be an algorithm for the CEO job that would improve decision making and better reflect financial worth to a corporation and its shareholders? Would they be more sensitive to the fears of their employees?