Comments on: Private Market Compensation: AIG CEO vs. Kobe Bryant

By: John Foy

John Foy — Tue, 11 Nov 2008 04:09:32 +0000

Here is my opinion:

1. CEO and all executive pay for publicly traded companies should be regulated by the SEC as oversight for shareholders. The greed shown by executives over the past twenty years proves they are not capable to act in the best interest of those they serve.

To argue that excessive compensation is needed to lure the top talent away from forign companies is a farce. CEO pay ratio to an average employee is around 22-1 in Britain, 20-1 in Canada, and 11-1 in Japan. There is limited demand for overpriced executives with poor track records in forign markets. The only reason U.S. CEO’s pay themselves on average a ratio of 400-1 is because there is no oversight to stop them. Board of directors and fellow executives have looked the other way because they were also getting a piece of the pie.

There is no comparison to Kobe Bryant and Martin Sullivan. Sullivan was the CEO of a publicly traded company and was trusted to make decisions in good faith for shareholders. Kobe Bryant is an entertainer that makes up the product or brand that is the Los Angeles Lakers. A fair comparison would be of Sullivan and Wyc Grousbeck. Grousbeck is the CEO of the publicly traded Boston Celtics.

I believe the pay for executives of privatly held companies should be left up to the free market.

2. It is fair that Kobe Bryant makes more than a policeman. Policemen are underpaid and perform a job that is 1000x’s more important to society than that of a entertainer. But there is an abundance of qualified people who will perform the duties of a policeman at that salary level. In contrast there is a limited number of qualified people to fill an extremly limited number of jobs in the NBA. Kobe happens to be one of the best. If the Lakers could pay him less they would. His salary is what the Lakes feel they have to pay to succesfully assemble their product.

3. The Government should set limits to executive compensation based on global market CEO to employee pay ratios. If a CEO goes over the limit they should be investigated by the SEC for abuse. Regulation would keep the process in check.

By: celine

celine — Sun, 02 Nov 2008 20:46:53 +0000

This is a very big depate in Switzerland, where the top managers get rediculous bonuses and stocks. This will not change as long a company is run by someone that represents the owner (Stockholders). It is very human to think of the own good first and this is exactly what they do. if you can get 30 million bonus in one year, who would not take the money?
I do not believe that it is the governmet that should intervene in that affaire, it should be dealt with within the company.

The monus should be representative to the performance of the CEO. if they had a bad year there should be a minimal bonus. For a good year bonuses can rise but an amount on 30 million francs just for chrismas is very upseting for the people on the streets, who are eventually the customers.

By: Julia McDonald

Julia McDonald — Thu, 16 Oct 2008 21:01:03 +0000

As I started reading this article, I found it very concerning that Sullivan was given $47 million dollars after he was fired from AIG, while all the owners were just out of luck when AIG failed. I immediately started to ask myself why the government did not implement some sort of regulation to prevent this. How is it fair that these CEOs make such a huge income, while many other hardworking Americans will never make anywhere near such a salary. However, I now have a deeper understanding of why this is the way it has to be.
I never really thought about how challenging and risky being a CEO truly was. And it seems very logical that they should have such a high income and severance pay. And of course, if the salaries were to be limited, self interest would be affected and the CEOs would not be as concerned with trying to constantly improve the company and make it the best it can be. In my opinion, society can be quick to judge and criticize the salaries of certain jobs, but we really need to try to analyze how much work and stress these people are under before making any pretenses.

By: Nick Barbero

Nick Barbero — Wed, 15 Oct 2008 00:04:03 +0000

1. It would be dificult to limit CEO salaries to a maximum as the maximum demanded would exceed the severence payment. The maximum amount should be based on work experience. The severence payment should be limited because if it is too high it already encourages a failure of the CEO.
2. Is it fair? No! But in the economic world it is hard to maintain stability and dificult to prevent unfairness as there are man factors and key players involved. Judging from a broader spectrum one can conclude that though Kobe Bryant is gaining vast amount of dollers “unfairly” it is harming someone on his side (like the manager) despite the opportunity cost of not having Kobe on his team.
3. The Government should create a form of “checks and balances” form of executive compensations, in which the wide and distinct gap is not as noticable. However one could argue that Kobe’s opportunity cost is greater than that of Sullivan’s or police officers’.

By: Pugalenthi Natesan

Pugalenthi Natesan — Sun, 12 Oct 2008 02:33:42 +0000

Very Good discussion.

I am in no way a Business Savvy person, just a common man.

My view is:

The incentive arrangement should be an arrangement that reciprotes. By that, what I mean is Salary & incentive for success and success only.

The goal behind hiring a CEO is to lead the company to success.

What happened in Sullivan’s case is that he benefits more when failing ($47M now) than with success (say 20M per year for 2 years).

To me, it appears to be rewarding someone more to fail than to lead to success.

By: Viltis Palubinskas

Viltis Palubinskas — Sat, 11 Oct 2008 04:33:35 +0000

1. In your opinion, should the Government limit CEO salaries to some maximum? What about their severence payments, should they be limited? If so, how would you set the maximum amount?

Limiting CEO salaries is a mistake. If the possibility to earn more money disappears, a CEO feels less invested in their company and its performance. Capping CEO salaries would remove the incentive to run companies efficiently and would promote mediocre performance. A cap in income would also make potential CEOs more willing to go abroad to work in foreign markets if more lucrative salaries can be found elsewhere. The same applies to severence payments, if a potential CEO feels that working for an American company will not provide enough job security and compensation if they did lose their job, people will begin to look for work abroad.

2. Is it fair that Kobe Bryant makes more than a police offer? Why or why not?

Fair? Yes. Reasonable? No. The stock market reflects life; the public sometimes bids up the value certain stocks and qualities, but profits and performance ultimately deterimines the value of these stocks and qualities in the long run. Kobe Bryant is a talented basketball player. At the moment, the public highly values individuals who play basketball well, as a result, the market rewards Bryant and he makes a lot of money. The services that a police officer offers, though necessary, are not valued as highly, so the market gives police officers enough to live on, but does not pay them exorbitantly. Though each is paid according to their market value, the amount of money that Kobe makes does not seem reasonable compared to what a police officer’s salary.

3. What specific action should the Government take, if any, regarding executive compensation?

I think that the government should not take any action regarding executive compensation. The market regulates itself and if Kobe Bryant gets to make millions by playing a game just because there is a market for his abilities to play and entertain, executives should also receive compensation if that is what the market dictates.

By: Stephen Turcol

Stephen Turcol — Sat, 11 Oct 2008 00:06:06 +0000

I completely agree with your statement in this post. I feel if we did have some sort of maximum limit for CEO payouts then they would not chose to work in the United State. This would cause a huge loss in our standard of living. However i believe that the company should take some steps to prevent the pubic from being outraged at the company. I think that the first way is what Mr. Latter stated, making the company sending out letters to the shareholders about the CEO payout.

I think another way would be to have the company limit the amount of money is spent on useless items. Yes, i am talking about the retreat the big wigs took this week after being bailed out. I think the public would not be ready to start a mob if this had not occurred. Some stricter company policies could go a long way in reducing the publics anger at the company.

By: Scott Simmons

Scott Simmons — Fri, 10 Oct 2008 18:41:33 +0000

No, I do not feel that the government should limit how much money a CEO can make. The majority of CEO’s in our country are driven by economic self-intrest. If they feel that they won’t be able to maximize their profits in America because of government limitation, then they will take their work to other country. This would be devastating for our economy if we were to lose all of our pioneering entrepreneurs to other economies. On the question relating to severance pay i believe that there is some need for regulation on that amount. I feel that a CEO’s severance pay should not be a set amount, it can change on an annual basis, based on the previous year’s performance. Therefore if a company had a good year, the CEO has a right to a higher severance payment, if it had a bad year, the CEO’s severance payment can shrink. To eliminate having to evaluate what the actual payment should be I also believe that the payment could be a percentage of that year’s salary.

In regard to the second question, I feel that it is perfectly fair that Kobe Bryant makes more than a police officer. This is just a product of the free market. If we as Americans are willing to contribute to his paycheck, then he has earned it. I personally feel that the safety of the people is more important than viewing a sporting event, therefore i would place my dollar vote towards the police officer. But Kobe Bryant has a skill that not everyone can do which makes his talents worth 20 million dollars.

I believe that the government should not play any role in regards to executive compensation. It is a matter that should be decided at the company’s discretion. As I previously stated the CEO should be payed based on his performance. If the CEO is not happy with his current compensation, then he should work harder to raise the company’s performance, which ultimately will benefit us, the consumers.

By: Mike Chelena

Mike Chelena — Fri, 10 Oct 2008 03:56:14 +0000

I do not think that the governent should put a max on how much CEO’s can earn and what their severance pay should be. Being a CEO is a tough and stressful job that is very volatile and CEO’s are hired and fired frequently. If a salary cap was placed on the job prospective CEO’s might not pursue that career because it would be too risky for them. This would then cause less talented people to become CEO’s and cause businesses to be less productive.

I do not think that it is necessarily fair that Kobi Bryant makes more money than a police officer but if people are willing to pay him that much to watch him play basketball then he has every right to take advantage of that. Also, being a professional athlete in itself is difficult and takes alot of dedication and skill.

I don’t think the government should interfere at all with executive compensations. the company can decide how much they are giving their top executives. this will of course cause CEO’s salaries to rise because in an increasingly competetive world to get the best you usually have to pay the most.

By: Kyle Schreiber

Kyle Schreiber — Fri, 10 Oct 2008 03:07:04 +0000

1. I do not believe that the government should set a maximum CEO salary. If CEO’s salaries are limited, they will lose their incentive to work harder for more pay. Say for example the government sets $5 million as the maximum income a CEO can receive. He or she will do the minimum amount of work to make their maximum salary. The most talented and best CEOs might also move to a foreign company to make more which would cause problems for corporations. If there is no salary cap, CEOs will work as hard as they can to make as much as they can. As for government limits of sevrence limits, I think the government should stay out. If sevrence payments are limited, the best and talented CEOs will go to other foreign companies in Canada or anywhere else. Sevrence payments are what attracts people to the high risk job of CEO of a corporation. In short, I believe the goverment needs to stay out of CEOs salaries and their sevrence payments.

2. I think it is fair because even if Kobe’s salary was say $100,000 a year, the proceeds from tickets, commericals, ad, etc would have to go somewhere. Since Kobe Bryant is a large part of the reason the Lakers get the money from tickets, ads, etc he should receive a large amount of the money. I think that the fact his salary stays the same even if he is injured is fair, because he does not know if he will get injured. Sevrence payments follow a similar principle. The job is very high risk, so if something happens, Kobe needs to know that he will still make money. Someone would be getting rich off the way Kobe Bryant plays, so why not Kobe Bryant ?

3. I do not believe the government should not interfere with CEO compensation. I think that CEO compensation should be done at the discretion of the corporation. If the company feels the CEO didnt make expectations, than his compensation will not be as much. If the CEO did agood job, he should get a higher compensation. This will also cause a higher incentive to do a better job and thus make more money. If the CEO does a better job, than the corporation will do better. The bottom line is that government interference takes away incentive. Incentive and competetion is what America’s economy is built on, and if that is taken away the economy will not be the same.

By: Evelyne Burr

Evelyne Burr — Fri, 10 Oct 2008 02:53:34 +0000

The government should not limit CEO salaries to a maximum. This would eliminate the drive of people to work harder. What would they be working towards? No one would want to do the more difficult job if they were to earn the same salary. I believe it is in the best interest of the company to keep the high CEO salaries. A main point in the economy is to maintain competition. It is also important to preserve competition between employees in the workplace for this will help the economy. As people work towards their own self-interest, they are also working towards the best interest of the whole economy.
I believe it is fair that Kobe Bryant makes more than a police officer. He probably should not be making the millions of dollars that he does, but we are the ones giving him the money. We demand tickets to his basketball games and constantly change the channel to basketball on our tv’s. He has a high pay because we give him that pay. Police officers are very important in our society and we could not do without them, but their pay is just. Kobe Bryant provides the people with entertainment but if many believe his high salary is unfair than they should stop going to his games. The people are the ones who decide the goods and services produced (including the entertainment Kobe provides), and the price at which we pay from them.
I believe that executive compensation is a good idea. It will give a greater opportunity for the very talented to become CEO’s because they will not have to fear as many consequences. Some may argue that compensation should not be given to those who have done a poor job and deserve to be fired. How bad of a job can these CEO’s do though? They would have had to work their way up to gain this position and should be fairly well educated. It is usually best for the government to not get involved in the economy when they don’t need to, but I think this works.

By: Matthew Richards

Matthew Richards — Fri, 10 Oct 2008 01:04:46 +0000

The government should not limit salaries for CEO’s, for as mentioned this may drive them to foreign markets and businesses, although this may not be totally true because they would sacrifice much of their life in their home country, which they may not be willing to do. Although, a maximum would also reduce the drive for a CEO to push his/her company, in order to gain a greater profit and improve the sales and status of his company. His usual motivation for a greater profit is gone, and this could well impact our economy. A maximum also impacts the free-market values, so it should be left as is. As for severance payments, they should not be limited because how can you set a price for every CEO to pass through the company, as one may deserve more than the other. Simply enough, a Board of the company should meet and through much talk decide on the right severance pay, as that seems the right way to handle it. The CEO should not have much say in his severance pay, cause obviously, that would be biased (whether or not he does have a say I do not know how it works).
Kobe Bryant? Whether or not his salary is fair is always debatable. You could at it like this: he has a job just like any other man, and he has a talent at his job so few have ever possessed, so he is amazing at his job, just as any other man is great at his job. So in that respect, he earns his money. But at the same token, he plays a sport, that takes no real education and true intelligence, not to bash him or say he isn’t intelligent, but also there remains the simple fact that it is just a sport. So fairness is debatable, but the money he earns is part of balancing our economy, and we are the ones who pay him that money in essence, so we cannot complain about his millions. People enjoy his entertainment as any other exciting sports player, so we pay to see it. His salary is our own faults, or accomplishments, if your against or for him.
The Government should take little to no action on executive compensation, except maybe devote boards and committees to such ordeals, if it has not already been done. Letting those involved in the company or around the company decide seems the only real fair way to do. Limiting compensation could result in various problems.

By: Steve Latter

Steve Latter — Thu, 09 Oct 2008 08:17:59 +0000

Hi Aaron, Lee, Josh, Cat and Courtney,

Great posts! Thanks!

By: Courtney Connors

Courtney Connors — Thu, 09 Oct 2008 00:53:43 +0000

In my opinion, I do not think that the government should limit the CEO salaries to some maximum. There are many reasons for this statement, but most importantly this would take away some of the competition among employees to become the CEO. If there is a maximum salary for the CEO and an employee thinks that he can make the same amount at some other job, they would not try to compete for this job. If this happens, the CEOs would not be the best possible people suited for the job, but just the people who want the job and have most of the qualifications for it.

In addition to this, the CEOs that are hired would not be as motivated to do their jobs well. They would know the maximum salary that they can get, and would not be motivated to try to receive a better salary based on better performance. On the subject of severance payments, I think that they should be agreed upon and looked over by both the person receiving the severance payment, the company paying it, and the government, just to make sure that everything is just and fair. These people should be paid alot for taking risks and putting their careers on the line, but to a certain extent. This extent should be moderated based on the performance of the person over the time that they have worked there. In this way, this promotes the person to do the best that they can.

This extent ties into the question about Kobe Bryant making more than a polic officer. I think that many people may view this as unfair because the polic officers are putting their lives on the line for our safety everyday, but in the end, we are the ones driving the basketball player’s salary. He would not be paid as much if these people didn’t go to the games or watch him on TV. Although this may not be fair, that’s just the way things are. It would be better to pay the basketball star a larger salary then to lose his membership on the team, and the money that is used for the payment is from our pockets.

I do not think that the government should take any action regarding executive compensation. The reason for this is because this is one of the main responsibilities for the companies, deciding how much to pay the employees. The government should not be involved in this because the companies are only going to do what is in the best interest of the company anyways. When the companies set the salaries, it allows the employees to strive to achieve the better salary as well.

By: Kyung Lee

Kyung Lee — Wed, 08 Oct 2008 03:24:02 +0000

1. In your opinion, should the Government limit CEO salaries to some maximum? What about their severence payments, should they be limited? If so, how would you set the maximum amount?
- Yes. In our complicated economic system that I do not understand well, we have something called ’stocks’ this is, as I learned in personal finance class, the investment to the company, and anyone can join in if he has enough money to buy this investment. This stock system is very complicated, (and I personally think that we have to learn psychology to understand this) but the basic understanding is that the ‘profit’ of the company drives the stock price. And often the CEO and many employees have something called ’stock option,’ which mean that they can buy the stock for lower price, if the price of the stock went up. So, it works out like this: When CEO does a great job, he will earn a thousands of money by choosing stock options. But, if he does a yucky job and make the profit go down, he would get his salary, but it will be limited by the government, because it is just unfair that the CEOs of big corporations can get millions of dollars even when they retire and put company in danger. This leaves CEOs with chances to have the big bucks and also the chances to lose the big bucks.
2. Is it fair that Kobe Bryant makes more than a police offer? Why or why not?
-It is fair. As not a big fan of NBA, I have no clue how Kobe Bryant is doing. Maybe he is not good, but just popular, or have an amazing basketball skills, I do not know. However, the important thing is that people pay the money to go see him. Public opinion (Dollar Votes) wants him, and this balances out in the market system. TV channels, Foot Locker, companies that make his shirts, watches, hairbands, armbands, or even the deodorant are willing to pay him big bucks to be on the commercial. A simple equation that applies this example - People’s desire = Big bucks or higher price. (And by the way, who likes policeman who caught you doing 90 one the highway?)
3. What specific action should the Government take, if any, regarding executive compensation?
- Government has been, and still is, taking actions on the executive compensation, but indirectly. The taxes that they put on those money, it counts as one of the actions that government take on the executive compensation. Anyway, I do not think that government should take actions on executive compensation, because executive compensation is, I believe, different from salary. It is an award to the CEO for making the profit greater. As put into school thing, a Good-Job stamp for a sticker that only B+or above students get. If government annoy the businesses even with this compensation, they would not want to do business in US, and we would lose many valuable money-making VIPs that we have.