For those who like to get outraged over CEO pay, take a look at this CNN/Money story. I actually have no problem with high CEO pay, as long as it is tightly linked to the performance of the company. I should probably also add, as long as the compensation committee is independent and not beholden to the CEO. Jack Welch, Lou Gerstner, and Stanley Gault all made huge contributions to their companies (the latter two saved their respective companies, IBM and Goodyear, from ruin), to their employees, and to the economy. When the pay is not linked to performance, as is the case with severance packages and to some degree stock options, then the pay levels are in fact pretty outrageous.

Why do companies offer generous severance packages? One theory is that the compensation committee is controlled by the CEO. Another is that it allows them to give lower pay during the CEO’s tenure by reducing the risk the CEO faces. Of course reducing the risk the CEO faces in this fashion reduces the link between CEO pay and company performance, to some extent invalidating the theory behind high pay in the first place.


P.S. I talked about this issue in an earlier post on dividend taxes.

P.P.S. This post, and others by other bloggers (Wampum and To The Point, so far) available at