The CEO Pay Machine

In general, CEO pay is out of control and out of line with the value managers provide. I suspect that few people who don't benefit from this system would dispute that. Study after study has shown that CEO performance is not correlated with pay, and that luck plays a far more dominant role in company results than management prowess. And yet, the CEO pay scale has risen to astronomical heights, because company boards, who are supposed to be shareholder representatives, have been captured by company management. Since I already have this point of view, I thought there was little point in reading Steven Clifford's The CEO Pay Machine: How it Trashes America and How to Stop it, but it came so highly recommended that I read it anyway.

I did learn a few things. Clifford starts out by making the case that CEO pay is too high, and how that damages American society.

The number of actual mechanisms by which pay raises are justified by these captive boards is astounding. There is a laundry list of little tricks to steal from shareholders and divert funds to management that Clifford describes.

Clifford has sat on a bunch of boards and audit committees, and so he has seen a number of these tricks employed first hand. He has also never dissented due to the peer pressure of wanting a unanimous vote, despite having reservations.

Sadly, there is probably no solution to this problem without regulation. The current terrible system is too entrenched, and companies with shares that are widely held are not likely to ever be able to influence boards as much as CEOs.

Enjoy!