Pay for performance: are CEOs underpaid?WE WERE STRUCK by the news that hedge fund hedge fund, in finance, a highly speculative, largely unregulated investment device. Originating in the 1950s, the funds "hedge" by offsetting "short" positions (borrowing a security and then selling it at a higher price before repaying the lender) against "long" chief executive Edward Lampert Edward S. "Eddie" Lampert (born July 19 1962[1]) is an American investor, financier and businessman. He is the chairman of Sears Holdings Corporation (SHLD) and founder, chairman, and CEO of ESL Investments. personally earned $1 billion in 2004 and that the top 25 hedge fund managers averaged $251 million. A hedge fund manager typically gets a 20 percent cut of the increase in the market cap of the fund's holdings. The hedge fund camp says this is pay for performance. The mantra mantra (măn`trə, mŭn–), in Hinduism and Buddhism, mystic words used in ritual and meditation. A mantra is believed to be the sound form of reality, having the power to bring into being the reality it represents. is, "We only get paid if we make money for our clients." But let's do the math. What would happen if Jeff Immelt got the same 20 percent? General Electric has a market capitalization Market Capitalization A measure of a public company's size. Market capitalization is the total dollar value of all outstanding shares. It's calculated by multiplying the number of shares times the current market price. This term is often referred to as market cap. of roughly $390 billion and in many ways is a portfolio of different operating units operating unit A type of operating company that engages in transactions with outsiders and that is owned by another business. For example, in 1995 the stockholders of Capital Cities/ABC approved a $19 billion merger with the Walt Disney Company, whereupon , much as a hedge fund is. If Immelt had a good year and increased GE's market cap by 20 percent, or roughly $80 billion, he'd be entitled to take home $16 billion. Think of the outrage that would provoke. What makes the hedge fund pay packages all the more shocking is that hedge funds are a source of the grumbling about CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. compensation. Yet the shares that CEOs may receive only increase in value if all shareholders benefit. Why is that so different from what happens at a hedge fund? Plus, hedge fund managers run organizations that are much smaller than major companies, which implies they are less complex and less difficult to manage. Further, they don't run nearly the same personal risks--CEOs now are criminally liable for bad accounting. Perhaps the moral of the story is that people who live in glass houses should not throw stones. Taking huge compensation packages while criticizing real CEOs is just plain hypocrisy. |
|
||||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion