The topic of my report is the myth about American chief executives being overpaid. To start with, the idea that American bosses are obscenely overpaid dominates in the modern society. For instance, Among the true believers in this consideration are the NY times and Forbes who complain of fat paychecks awarded to CEOs who don’t deserve them. What is the basis of this orthodoxy? Actually it rests on three propositions First and foremost – CEO pay just keeps on going up
The second one – the fact that it is not tied to performance of the company and the last but not least - that boards are not restraining their appetite. Altogether these propositions in turn rest on a bigger argument: that CEOs are using their political power to tamper with the system. The article highlights Steven Kaplans opinion as recently he has published a research regarding the problem. Above all, it should be noted that he distinguishes estimated and realized pay. Estimated pay is t Estimated pay is the estimated value of the CEO’s pay, including stock options, when the board does the hiring. Realised pay is what the CEO actually makes when he exercises his options. In fact Steven Kaplan disproves practically all the arguments given above. First, He questiones the idea that CEO pay always goes up by providing data which shows that, it shot up between 1993 and 2000. But since then it has fallen. Average estimated pay for the bosses of S&P 500 companies has declined by 46% since 2000. Furthermore, turning to relationship between pay and perfomance Mr Kaplan argues that CEOs are clearly paid for improving the performance of their company’s stock. Firms with CEOs in the highest 20% of realised pay generated stock returns 60% greater than those of other firms in their industries over the previous three years. Firms with CEOs in the bottom 20% underperform their industries by almost 20%. CEOs are also kicked out if they fail to perform well.
Thus Mr Kaplan provides a valuable corrective...
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