A CEO's lament: the dastardly scoreboard.

AuthorKeller, George M
PositionCEO COMPENSATION

Ed. Note: A CEO boldly admitting that CEOs are overpaid--how rare is that? Well, George M, Keller did so in Directors & Boards in an article he authored in 1994, By then he had retired as chairman and chief executive officer of Chevron Corp, His legacy included executing the largest corporate takeover at the time--the acquisition of Gulf Oil Co, in 1964, a deal that transformed Standard Oil Co. of California, which he had joined in 1948, into Chevron Corp, Keller died in October2008 at the age of 84. Following is a passage from his remarkably candid article that touches on the problem of peer groups.

American corporate CEOs, in general, are significantly overpaid. Their job responsibilities and risks just do not justify multimillion-dollar compensation. Let me hasten to acknowledge that I was a beneficiary of a good part of the inflation of the CEO's income before retiring at the end of 1988.

Today's typical corporate compensation profile looks like a pyramid with the Eiffel Tower poking out the top--the CEO and one or two other executive officers far above the madding crowd. At present compensation levels, most CEOs are working to generate funds for their grandchildren, their favorite philanthropies, and the IRS.

Of course, the board compensation committee is aware of the widening gap between the CEO and the rest of his organization. Practical economic considerations preclude our moving toward a more equitable relationship by simply doubling the lower-level salaries, so we pursue a sort of pseudo-equity by trying to restrain further expansion of the gap and by relating the CEO's compensation more closely to his success in generating value for the business as a whole.

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We are faced with the need to be competitive--whatever that means--in order to hire and retain qualified executives...

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