Can we at least be clear, we are not talking about “pay” or “CEOs” We are talking about total compensation and few hundred individuals who head companies in the S&P 500 group.
CEOs do not set their own pay, that is set by the Compensation Committee of the Board of Directors and the Board. Most compensation is not salary, but stock awards, including stock options. They may have future value, they may not, but when issued they are assigned a value for the purpose of determining and reporting compensation, that value is not guaranteed for the executive.
The value is ultimately determined by the difference between the issue price and the price of the stock when the options are exercised (sold). Thus there is an incentive for the CEO to act to increase shareholder value, all shareholders.
One can legitimately argue about some of the methods used to increase value which largely revolves around boosting earnings per share, such as merely cutting expenses or reducing the workforce, but those strategies work only so long.
To make the simplified statement “When every industry stock goes up, their stock goes up,” is misleading at best. Stocks in an industry or sector do not automatically rise and fall in tandem, but a single event could impact an industry. Rising interest rates are typically negative for utilities; skyrocketing fuel prices could impact transportation stocks, etc. But to imply for example that WalMart, Costco and Target will move in tandem is simplistic and inaccurate. What happened to Kmart?
And what about “Exorbitant CEO pay is a major contributor to rising inequality.” Major contributor? A few hundred people affect inequality in the world? Our concern should not be with compensation at the top or even with the so-called inequality caused by it. There has always been inequality even if the gap is larger and more concentrated today
Our concern should be with the reasons why average people cannot advance as easily or rapidly as in the past and not with cutting someone else’s pay. And what are those reasons? A few I’ve heard mentioned include globalization, technology, our education system, decline in unions, changing structure of jobs and more, but it sure isn’t what the CEO of Verizon earns that keeps people treading water.
Exorbitant CEO pay is a major contributor to rising inequality that we could safely do away with,” study authors Lawrence Mishel and Julia Wolfe contend. ”CEOs are getting more because of their power to set pay, not because they are increasing productivity or possess specific, high-demand skills.”
“When every industry stock goes up, their stock goes up, and they’re rewarded as though they hit a triple,” Mishel said in a CBS News report. ”That’s not for performance as they are sitting in the bleachers.”