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Greg

Bob,

What's your take on Elliott Jaques' "Felt-fair pay"?

Derek Scruggs

Good to see Harold Geneen, do that, but I've seen the same situation and the risk was effectively removed ex post facto. I worked for a company who's new CEO borrowed money to buy shares. When the company cratered and was forced to sell for pennies on the dollar, he negotiated a bailout of his loan as part of the acquisition price. Some risk.

dblwyo

Bob - beyond the studies I think we need to look for mechanism. My belief (& prior argument: http://tinyurl.com/2xqwtg)is that enterprises are social organisms which require commitment and legitimacy to function well. Excess CEO pay reduces the legitimacy, excess at the expense of the health of the company more so, especially while people are being laid off. Pretty soon you have a vicious cycle of degeneration where everybody spends all their time watching their backs and looking for the next opportunity. Effort levels drop enormously to the detriment of performance because everyone is looking for their next opportunity. And this behavior is perfectly rational on the part of the employees.

Jan

There is even a more serious side of this. During the last 10 to 15 years we have seen redistribution of wealth in a scale not seen before, from middle income families to less than 1% of the US population. Accumulating this amount of capital has no point, unless you put it into work somewhere. When people are not credit worthy, things like sub-prime mortgages are invented. Thus the credit crisis we have now. In a sense, this redistribution of wealth destroys the market. And this is taught in Business Schools...

Wally Bock

Bob, I agree that the Journal article was thoughtful, but I also thought it was muddled.

Ratios for the pay of CEOs (no data about company size) to all workers are mixed with statements about the relation of CEO compensation to the other top 25 executives.

Big and small company examples are mixed.

There's no discussion of the performance of the companies used as examples and no discussion of how people feel about the ratios between CEO and other compensation in profitable versus unprofitable companies.

There is a statement about what jobs MBA graduates are pursuing today versus 1970 without a shred of information about how that fits into the discussion.

I think this is an important issues, but I think the Journal article to help us sort it out.

Bill Burnett

High pay often means 'no risk'. Pay is not really tied to company or individual performance. If the CEO is shielded from risk, it's got to be hard to really 'lead the troops'. Leadership is showing that "risks can be surmounted, and surmounting these risks is what we are going to do!"

When Harold Geneen was given a large block of options by his board, he immediately went out and borrowed a lot of money to exercise the options and put back in the risk. That's leadership.

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