Sense on CEO pay

An interview with Charlie Munger, Warren Buffet’s long-time business partner, was published by the Los Angeles Times on New Year’s Day. After the Home Depot abomination, Munger speaks tremendous sense:

What makes CEO pay so difficult is that only a few of the people who are earning these huge amounts are actually worth it. Everyone else figures they have to keep up or recognize that their guy isn’t as good. Who wants the recognition that the company down the street has a remarkable CEO, but we have a mediocre klutz?

I like the idea of high pay for people who are really worth it. The problem is that most of them are not. Every mediocre employee who rises through the ranks to become CEO thinks he should retire rich. It’s crazy.

Munger also reckons that any hope of improving the situation will be hard won. He has a very dim view of a lot of American executives: “In my opinion, not enough executives have gone to jail.” (Via Kevin Drum)

2 thoughts on “Sense on CEO pay

  1. J. Richard Finlay

    There are those, of course, who wonder why such a big deal is made about any CEO pay package. They can’t be spending much time in or near the organizations whose employees see such a growing disconnect between the standards set for a privileged few by the board and those imposed upon workers on the floor. They don’t think about factors like morale, or fairness or leadership that eludes respect and the extent to which these affect the performance, growth and, ultimately, the earnings of a company. And I don’t suppose the defenders of Nardelli’s pay even give a second thought to the significance of the fact that the company he led continues to be at the bottom in terms of customer service, and far below its nearest competitor, Lowes, or that it seems to have developed a unique capacity to alienate customers as any quick sampling of opinions on the Internet will reveal. Others still are not particularly bothered by options backdating, viewing it as an innocent mistake. Funny that they always inure to the benefit of some other party, usually the party making these so-called mistakes.

    All these things diminish respect for capitalism, which, from my perspective of some thirty years of first-hand involvement in it, is an economic system that needs its guardians of principle and champions of responsibility as much as it needs its hedge fund managers and free enterprise tycoons. The surest way to bring about the overreach and inefficiencies of government intervention is for the laissez-faire advocates of business to continue to cling to the increasingly discredited notion that no amount is too much to pay a CEO. The consequences of the erosion of confidence in capitalism and esteem for its leaders are too important to be left to such short-sighted thinking or to dysfunctional boards.

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