Walter
Williams
http://www.NewsAndOpinion.com | In
the wake of the Enron and WorldCom corporate scandals, the purveyors of envy
have found another opportunity to preach about what they consider the evils of
high CEO salaries, retirements and bonuses. After all, according to them, evil
must be afoot when a corporate executive earns more in a week that the average
worker earns in an entire year. Let's look at it.
Dishonest Enron and WorldCom CEOs
are rare among corporate executives. As such, all CEOs shouldn't be tarnished
for the misdeeds of a few any more than we'd tarnish all newspaper reporters
because a few among their ranks were liars like the Boston Globe's Patricia
Smith and Mike Barnacle, Jayson Blair of The New York
Times, and The Washington Post's Janet Cooke.
Is a CEO worth millions of dollars
to a corporation? When Jack Welch became General Electric's CEO in 1981, the
stock market judged the company to be worth about $14 billion. Through hiring
and firing, buying and selling, Welch turned the company around before he
retired in 2001. Today, GE is worth nearly $500 billion, making it one of the
most valuable companies in the world. What's a CEO worth for providing the
brains and leadership to turn a $14 billion corporation into one worth $500
billion? How about paying just a measly one-half of a percent of the increase
in value? If that were the case, Welch's total compensation would have come to
nearly $2.5 billion, instead of the few hundred million that he actually
received.
The Gillette Co. was in the early
stages of corporate death in 2001 when Jim Kilts took over as CEO. The
company's stock had lost almost half of its value in two years, and sales
volume and market shares of its major brands had plummeted. Between the time
Kilts took over at Gillette and this year's Jan. 28 announcement of Procter
& Gamble's purchase of Gillette, Gillette's market value increased by $11.3
billion, a 34 percent improvement, and since the announcement, Gillette's value
has risen by another $5.7 billion.
Kilts' salary and bonuses over the
past four years, totaling about $17.5 million, haven't been especially large by
CEO standards. Predictably, however, Kilts' pay and particularly the size of
his compensation package from the merger — $153 million — have been the subject
of media carping, particularly in
Here are a couple of questions to
you: If you were the owner of GE, and a CEO could turn your $14 billion
corporation into a $500 billion one, how much would you be willing to pay that
man in salary and bonuses? Or, in the case of Jim Kilts, turning Gillette from
a corporation in steep decline into one Procter & Gamble was willing to buy
for $57 billion, how much would you be willing to pay?
Then, you might ask yourself: If a
corporate board of directors could buy a $300 computer that could do what a CEO
could do, would it pay CEOs millions of dollars? By the same token, if an NFL
owner could hire a computer to make the decisions that star quarterbacks make,
why would he pay some of these guys' yearly compensation packages worth more than
$10 million?
There's another important issue.
If one company has an effective CEO, it is not the only company that would like
to have him on the payroll. In order to keep him, the company must pay him
enough so that he can't be lured elsewhere.
If you ask me, I know of only one
class of workers who are overpaid and underworked —
college professors.