September 3, 2014
Former CEO Calls Executive Pay ‘Extreme,’ Says Own Pay Was ‘Ludicrous’
– Broc Romanek, CompensationStandards.com
Here’s this article from ThinkProgress.org:
David Dillon, the former CEO of the supermarket chain Kroger, told the audience of an Aspen Ideas festival that his pay in his last year on the job, which clocked in at nearly $13 million, “even seems ludicrous to me.”
He clarified that the package wasn’t ludicrous when it was first put together, but rose so high because the company’s stock has skyrocketed, and much of his compensation was tied to the stock price. “I don’t really defend that amount, that even seems ludicrous to me,” he said. And while he said that even before the large package, compared to his peers, “I generally hit the 25th percentile on the bottom side” for compensation, even that “was pretty damn high.” In a follow up interview with Quartz, he added that the use of the word ludicrous was in comparison “to what I thought was a more logical level of pay for the year.”
On the panel, he also defended the idea of designing executive compensation so that CEOs “have enough shareholder interest that they are mentally aligned with thinking about what should a long-term shareholder want out of an organization.” But he admitted things have gone pretty far. “I also think it’s gotten a little extreme, or maybe a lot extreme,” he said.
In speaking with Quartz, he added, “I personally believe that, generally speaking, executive pay has gotten too high, and it needs to be addressed in appropriate ways.” He added, “Anybody who looks at CEO pay, even if it was reasonably based, they would say that person is paid way too much.” “I don’t dispute that they ought to be paid really well,” he said. “It’s just that I think it’s gotten a little bit out of hand.”
The numbers back him up. Median CEO pay hit a record earlier this year, breaching the $10 million mark. It rose more than 50 percent over the last four years, while the average American saw her pay increase just 1.3 percent over the last year. Chief executive pay has risen 127 times faster than worker pay over the last three decades. The ratio of CEO pay to worker pay was 259.9-to-1 last year. That compares to a ratio of 20-to-1 in 1965 and even just 87.3-to-1 in the early 90s. Executive pay is even growing faster than pay for the top 1 percent.
And there is little evidence to suggest that these huge increases in CEO compensation are benefitting their companies. There is no evidence to suggest that paying CEOs top dollar means better performance in terms of profitability, revenue, or stock return. In fact, a study found that the companies that pay their chief executives the most see the worst results for shareholders. Despite the attempt to tie pay to company performance, companies routinely game those systems to ensure that the top executive gets his bonuses and payouts, even if they fail to meet targets. Worse, nearly four in ten of the highest-paid CEOs over the last two decades were fired, caught committing fraud, or oversaw a company bailout.