The OPM factor.
Author | Porter, Martin |
Position | EDITOR'S NOTE |
BACK IN 1982 DIRECTORS & BOARDS published an article entitled, "Is Any CEO Worth $1 Million a Year?" If we were to update that article today, we'd have to add one if not two zeros to that dollar figure.
We've just gone through a proxy and annual meeting season in which executive compensation was yet again a flashpoint for controversy. Shareholders are unhappy. Government types are unhappy. Journalists who have to report on CEO pay are unhappy (green with envy, I might say). Even board members are unhappy: A recent McKinsey report finds that 39% of surveyed directors feel that executive compensation is "too high" and 13% describe it as "far too high," while 43% describe it as "about right," and--perhaps for a bit of comic relief--the remaining 5% weigh in with an evaluation of "too low." The only party that does not seem to be unhappy is the recipient of the attention-getting compensation.
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The aggrieved seek solutions to a problem they see as a spiraling out of the bounds of sanity. The solution they often have in mind is some sort of new regulatory/tax initiative. The place to look for the best solution is the boardroom.
But the reality is that directors of a public company play--and pay--with other people's money. The "OPM factor" is what makes it easy for directors to award pay that they admittedly agree is too high, and hard for the recipients to turn down. As New Yorker business columnist James Surowiecki rationally observed in his recent critique of executive compensation, "Most CEOs will take whatever they can get. It is hard for them to say no when their boards of directors are saying yes."
How different would the pay...
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