Thursday, April 12, 2007

Another perspective on CEO pay

There are two posts on Free Exchange that give another perspective on why CEOs are paid so much.

The first discusses how CEOs may not have been paid as much in the 1960s and 1970s, but that was because they gained the benefit of huge expense accounts. So when you account for the lack of the extravagant expense accounts now, the compensation has not gone up, it has just changed forms. As a bonus, the post includes discussion of the Laffer curve, which we just finished talking about.

The second discusses some reasons for the increased CEO pay:
Better explanations have to do with changes in the tax code, the rise of stock-based compensation, foreign competition (which makes the choice of CEO seem much more important), and the massive increase in the market capitalisation of the biggest firms, which roughly tracks the increase in CEO pay.

Make sure you include these considerations in your answer to the previous post.
(Source: Free Exchange)

1 comment:

Anonymous said...

Capitalism's cornerstone is big businesses. These businesses have the extremely high paid CEOs. These business tycoons are paid over 100 times the average wage. Is this an acceptable income disrtibution? It depends on how their money is being spent. With money to this extent, it should be donated to charity or other possitive causes. An example of a business tycoon who did what was best for society was Andrew Carnigee. He used his money to donate to libraties. It is necessary for everyone to be responbile with their money and not just to flaunt it.