Cozy peer benchmarking… Ceo pay soars
The practice of ‘peer benchmarking’ and cozy relationships on executive boards have contributed to a steep rise in CEO pay since the 1970s, reports Peter Whoriskey in The Washington Post’s latest “Breakaway Wealth” report.
Pay data 2010.
So did plutocrats only start to become cozy among each other in the 70s? And did the concept of paying enough to avoid ship-jumping only become important at that time as well? It seems there are some other enabling factors that are more fundamentally important.
Your skepticism is justified, poppies. This issue is brought up whenever the last effort to address it has faded from the public’s memory. In the early 90s it again became a populist issue and received considerable attention due to Graef Crystal’s In Search of Excess. So, in 1993, Congress and President Clinton passed new legislation that capped tax deductibility of CEO pay at a million dollars [162(m)].
As a result, most companies that had previously paid their CEOs less than a million in salary bumped it up to the seven figure ‘standard’ that the government set. The law also expanded the use of options as part of executive compensation. That is the reason the graph of CEO pay since 1993 resembles the S&P500 performance on steroids. In fact, CEO pay from 1993 to 2006 increased 146%. And if you look at past legislation regulating executive compensation (from the 30s, 50s, 60s), you will see similar results: CEO pay increases AFTER legislation meant to limit compensation is enacted.