"Corporations Arguments For Skyrocketing CEO Pay Proves False"
Corporations Arguments For Skyrocketing CEO Pay Proves False
By Rebecca Leber at Think Progress
http://thinkprogress.org/economy/2012/09/24/895261/study-ceo-pay-justified/
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Company boards rely on a practice where they use loosely defined peer groups of supposedly similar companies to set the CEOs compensation. In reality, few CEOs leave one company for another: Of 1,800 CEO successions between 1993-2005, less than 2 percent had held the position at a competing firm. Their skills, highly specific to the company, are not easily transferrable.
Another issue is the peer groups companies use is so loosely defined that it includes firms that are much larger or arent in the same industry, much less rivals. In other words, the CEO of IBM is unlikely to jump to AT&T, Ford or Pfizer, even though those companies CEOs are included in IBMs peer group.
A recent example may include Best Buy, which offered its new CEO a three-year compensation package of $32 million, after laying off 2,400 employees this summer. A company spokeswoman defended CEO Hubert Jolys pay as in-line with best practice for Fortune 50 companies, and is squarely in the mid-range for a CEO of a company the size of Best Buy.
Its a false paradox,, study co-author Elson told the New York Times. The peer group is based on the theory of transferability of talent. But we found that C.E.O. skills are very firm-specific. C.E.O.s dont move very often, but when they do, theyre flops.
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