No less formidable pair than The University of Chicago's Gary Becker and Richard Posner chime in via their excellent blog on CEO pay and, to some extent, take to task the many measures used by the clamoring masses to whine that CEOs are overpaid in the United States. The two make some interesting observations.
U.S. CEO compensation has increased 6 fold in the last 25 years, a point often made large in the argument that CEOs are fat cats. Interestingly, and deflating the sting of this argument some, this is almost exactly the increase in size of the average, large publicly held firm in the United States.
U.S. CEOs make about twice what their foreign counterparts do, but salaries are a much smaller portion of CEO compensation in the U.S. (less than half) than, say, in Europe. Posner points out that foreign CEO compensation is actually catching up with U.S. compensation, which is an interesting point if you think the foreigners have it right.
Both are quick to give the competition for CEO spots, the "market for management talent" as it were, a nod. Both are also quick to point out that the increasingly reliance on stock options as a long-term compensation structure accounts for some of the change, but Posner points out that stock price is not necessarily correlated to CEO effectiveness or contribution. Of course, that is a difficult argument to make without a good control sample, but the point remains. So what are we to use if not stock options? Phantom options perhaps? Tied to metrics we believe are more closely correlated to CEO performance? What would those be? Net Profit? Market Cap? Revenue? (Surely not).
