I have mixed emotions about the level of compensation paid to CEOs of some of the largest and most successful American companies. On the one hand, based on the level of responsibility they take on, the number of hours they work, and other factors, I definitely think they should be compensated well above the average worker. Let them get their cash, options, limos, and other perks.
However, that understanding gets put on pause if the company that exec is running is underperforming, or just plain out sucking wind.
A new piece on MSNBC.com has a list of 8 CEOs that earn a high level of compensation, but run companies that had a negative performance on the stock market in 2010. The stock prices of the companies these men helm dropped between 3% and 31.4%, yet they still continued to earn over $18 million in pay and perks (no breakdown of how much is cash, options, or the dollar value of non-cash perks). Now, one could say that even though the stock price went down, in some cases revenues were flat or increased. But the writer points out something I’ve believed for a while as well, that the high compensation can be blamed on the stockholders, since “shareholders who cannot effectively vote to have management removed are saddled not only with those ineffectual executives, but also with their pay packages.”
You can read the article here.
Front and Center 
The problem with this thinking is that we don’t know how these companies would have performed under different management (presumably a CEO who was working for less). If these CEOs through their actions saved their companies $18 million+ then they earned their pay (and, given the current state of the economy, it’s not surprising that companies’ stock decreased). A different CEO working for a lot less but who would have cost the company even more would have been even worse than these CEOs. We don’t know how much these CEOs saved or cost their companies, so we don’t know if they earned their pay. Judging the stock price of their companies over a longer term than just one year (in a bad economy) would give us a much better judgment of these CEOs’ effectiveness. The stock performance over a couple of years (including before the recession) and especially over the CEO’s entire time of leadership would be much more useful information.
My opinion on CEO pay is that, while millions of dollars in income is excessive, I’m not comfortable declaring an income threshold over which someone is making “too much”. Even if I could come up with such a threshold, no one could possibly agree on it because we’d all come up with different numbers. I’d rather have the market and the shareholders (who have their money on the line) determine the CEO’s pay.
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That’s why I said I have mixed emotions about the whole thing. The stock price may have gone down, but if revenues are up or profits are up, then its hard to say they weren’t doing their job. I think, though there were a couple on the list where performance has been declining over multiple years. That’s a different situation, but for the company, it may be cheaper to keep the guy on instead of firing them. On the other hand, with the CEO being responsible for the performance of the company, I can’t complain if their compensation, even when it’s millions, is barely 1-2% of revenues.