Executive Compensation: In a Culture of Greed and Selfishness Is There Room for a Theory of "Enough"
Downs, Robert C., Faulkner Law Review
Apple handed new CEO Timothy Cook a compensation package of more than $377 million as he took over the company in 2011. (1) Lawrence Ellison pulled in more than $77 million that same year as Chief Executive of Oracle Corp. (2) In 2009, Gregory B. Maffei, CEO of Liberty Media Corporation had compensation of $87,493,565. (3) That same year, H. Lawrence Culp, CEO of Danaher Corporation, "earned" about $141,400,000. (4) Lawrence J. Ellison, CEO of Oracle took home $130,200,000. (5) In 2011, the 100 highest paid CEOs each made over $17,900,000. (6) In 1996's contentious ending of Michael S. Ovitz's employment as President of The Walt Disney Company, Mr. Ovitz walked away with about $130,000,000 for about fourteen months of work. (7) That equals nearly $10,000,000 per month.
In 1970, salary and bonus packages of CEOs averaged about $700,000, which was then about twenty-five times the average salary of a production worker. (8) By 2000, that multiple had jumped to ninety, (9) (525 for a majority of Standard & Poor's 500 Index companies) and by 2011, the multiple decreased to 380 for the same Standard & Poor's 500 Index companies. (10) Whatever the multiple, the difference between CEO compensation and that of the typical production employee has become enormous. Such disparities in income, and the actual amounts paid to Chief Executive Officers as well as other executive officers of publicly traded companies has elicited a range of responses including absolute outrage (11) and accusations of excessive greed, suggestions for governmental regulation of executive compensation, (12) and defensive commentary that attempts to justify the high compensation as "earned" by talented valuable executives. (13)
This article is, frankly, premised upon an unabashed opinion that compensation for chief executive officers and other high-level executives of publicly traded companies has run amuck. It is now clear that attempts to regulate and limit excessive compensation have had little, if any, positive effect, and may actually have contributed to the acceleration of the rate of increase. (14) Section I includes an analysis of the causes of such extraordinary high compensation packages and the public's reaction to disclosures of those amounts. Section II includes an evaluation of the various attempts at controlling excessive compensation, as well as proposals that have been advanced to accomplish that end. Section III includes the proposal to adopt a standard of "Enough" that will place reasonable limits on uncontrolled greed.
A. How We Got Here--Causes
The history of executive compensation reveals an increasing disparity in pay between high-level executives and typical production workers. (15) Whether that is worthy of concern depends, at least in part, upon one's point of view. (16) High-level executives and their defenders claim that the compensation is "earned," (17) while production line employees (particularly those who have lost their jobs) and other critics are less convinced. (18) Also, it is not only the chief executive officers who receive the large packages. A review of 10K reports of publicly traded companies (19) reveals that many other lower level executives are paid millions of dollars annually and participate in generous stock option incentive plans. (20) Indeed, to focus only on the top executives tends to mask the total amount of corporate funds directed to executive compensation, in one form or another.
It is now well accepted that executive compensation has increased dramatically over the past three or four decades, exceeding the wages of other employees by large multiples, and is not accounted for by inflation or an increase in productivity. (21) The size and complexity of major corporations has increased, but the discussion still focuses on the 500 or so largest U.S. corporations and the positions of highest responsibility in those corporations. …