Watchmen

How people get paid drives much of a company's culture.

Despite requiring taxpayer bailouts, Citi's CEO earned $38mm last year, according to Bloomberg. That only made him 3rd on the financial service. Number one was the CEO of Goldman, another taxpayer bailout recipient, at over $42mm.

CEO compensation, as a process, is fundamentally broken.

The reason my boss doesn't pay everyone who works for her enormous amounts of money is because she's on a strict budget. Her budget is set by her boss, who received a number from his boss. And so on, until you get to the top, where the executives act as "the watchmen". They decide what's right for everyone else.

At the top, the CEO gets a number from the board. Boards only have incentive to raise, and not rein in, CEO pay. Why would you want to upset your CEO? And who's watching them anyway?

Government controls and independent board members can't solve the problem. They have the wrong incentives.

I think the only thing that might work is shareholder approval of CEO pay. I might go farther and say shareholders can also make proposals for CEO compensation, as they can with other corporate resolutions. Shareholders are the only ones whose incentives are perfectly aligned to paying the executives correctly. Too little, you'll end up losing your CEO; too much, you're taking money from yourself.

Supposedly, shareholders get their say by electing board members. If you own stock, can you even name any board members of any companies you hold (excluding CEO + Chairman title holders, which of course only exacerbates the problem)? How are you therefore supposed to know which ones are doing a good job in general, much less what their involvement is in executive pay?

However, you probably know most of the CEOs. And you probably have a strong opinion about the job their doing.

Let's hope companies give shareholders a chance.