Do we need a salary cap for CEO’s???
I am a big sports fan. In fact, I can watch the exact same SportsCenter no less than five times in a row without getting bored. My love of sports has introduced me to the idea of a salary cap. All teams in the NBA, NFL, and NHL (Major League Baseball has a “luxury tax” instead) have a salary cap that limits the amount that each team can pay to their entire team. These salary caps are designed to maintain a competitive balance between large and small market teams. The owners of these teams would also argue that these salary caps have allowed them to keep ticket prices reasonable and to only charge $7.50 for a hot dog or beer. 
Could salary caps work to better serve taxpayers? Well, both McCain and Obama have talked about regulating CEO salaries during their campaign. It doesn’t take a brain surgeon to realize that there is little sympathy for CEO’s that take home millions a year. Obviously, suggesting that their pay be regulated will be met with little or no opposition to the average voter and is an extremely easy thing to say on the campaign trail. However, I could not find any specific plan on how CEO salaries would be regulated from either candidate.
How would I regulate CEO salaries? Here is my simple proposal:
1. The cap for CEO total compensation (including stock options and any other perks) will be $50 million a year. According to this Forbes list, 21 CEO’s would have to take an immediate decrease in pay and find a way to live on less than $50 million/year.
2. If your company does not make a profit, your maximum salary can be $10 million a year. As a result, CEO’s such as Stanley O’Neal of Merryl Lynch (they reported a $8 billion dollar loss on subprime related investments in 2006) would have had to take a $36 million dollar pay cut before he resigned. It is one thing to pay these gigantic salaries to companies that are actually making a profit, but if your company is not producing, you and your $10 million/year salary are going to be cutting coupons and costs like the majority of Americans.
3. Immediately dissolve any “golden parachutes” that allow CEO’s to run from failures with tens of millions of dollars. I dare you to read this article and not get sick to your stomach. My rule of thumb would be that the maximum “parachute” that you could leave with would be determined by years of service with the company X $1 million dollars.
4. Lastly, since I do believe in capitalism and believe that everyone should be rewarded for truly outstanding results, I would propose this slight amendment to my first rule. CEO’s will be eligible for an additional bonus (even if they are at the $50 million limit) if their company’s profitability increases from the previous year. This bonus would be at a flat rate of 10% of the increase of profits. For example, Exxon was the most profitable company in 2007, making a whopping $40.61 billion in profits–an increase of 2.8% from 2006. As a result, the CEO of Exxon would be give a generous $11.37 million bonus for his great results.
Can you imagine if my plan was implement and the amount of money that companies would save on CEO compensation? Imagine if that saved money was divided up and given to the employees of each company. Okay, someone pinch me. Yes, I do know that my above plan would be impossible and unpractical to implement as law, but it was fun to type my ideas out. Still, I do believe that as current CEO contracts expire, some Board of Directors and especially stockholders should insist on reigning back some of these out of control CEO salaries and might consider some of my suggestions?
Have any better ideas?? Let’s hear them.
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Filed under: Economy, Election 2008, If I were King, Uncategorized
I would say yes, I think CEOs do need a salary cap unless… they are the owner/founder of the company. If a person is hired to run a company he/she shouldn’t receive an owners/founder salary at the cost of the consumer.
This is why gas is the price it currently is… CEO making 10 billion a year!
bbrian017,
Great point about the owner/founder “clause” I do believe if someone built up the company from the ground, they deserve special consideration.
I’m going to have to suggest that you take a visit over at mises.org. I don’t agree with all of their opinions but you might like to take in a well thought out alternative view.
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I also wanted to bring up the founder clause. Let’s take Angelo Mozzelo the founder of Countrywide. He started Countrywide in his home, Angelo is Countrywide. Under his watch Countrywide had decades of growth. I am not a countrywide person, but I do respect the guy.
I am a free market type of person, and really, if people are still willing to work for a company paying the CEO that much, then the company will stay in business…. now, I don’t believe in government bailouts for companies spending tons on their CEO’s then wanting to go bankrupt.
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Danger Will Robinson! Danger! Danger!
There’s a reason that a free market economy is generally so successful and that’s because it is free. Or at least as free as it can be. If we start regulating how much a person can make in a private business where does it end? When do we say enough is enough?
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I agree that CEO should get some share from the total profit annually but here in India,, i think they don’t first outsiders are mostly not appointed on this post and once they are they don’t have this option open for them.. so i guess we are unlucky in this case..
I don’t agree with a salary cap but I do agree some CEO pay is absolutely obscene. How anyone allows such unacceptable behavior - taking such ludicrous payments, approving such lavish pay, taking what is not in any way earned - is beyond me. Obviously some people will do most anything if they are paid enough (as those who take these pay packages and boards that are paid to approve them show). Those people have to be called out for their actions.
Those that accept these people as donors to their charities, having them sit on their boards, donors to their political campaigns… should be treated just as someone else that had ill gotten gains. Luckily more and more people are seeing this unethical looting of others funds for the private gains of a few people (that pay each other a cut of the loot) as unacceptable. Slowly those that have engaged in this immoral behavior will be held accountable.
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As the owner of a business, I believe that to make money you have to spend money. You cannot spend money on something that doesn’t make you money. We know that the majority of all companies are run by regular people. They are what makes the wheels turn and what makes a business run. So pay your top guy, but keep it reasonable, share the wealth with your employees and you will be able to have more, because they will help make you shine!
[...] from the Red Stapler asks, Do we need a salary camp for CEO’s? His answer is “yes” and he gives a plan to do it. I could not disagree with Kevin more [...]
[...] Do We Need a Salary Cap for Ceo’s? [...]
There are lots of other people who should make less money. For example, why do autoworkers make so much money? Have you ever seen how hard people in tomato plants work? They should get some of the autoworkers money. For one thing, tomatoes never lose money. For another thing, cars do.
And speaking of automakers, isn’t it time we cut salaries to all employees in the automotive industry? Why should a secretary make $30 an hour when cars aren’t selling? You take the average secretary in a doctor’s office and they make no where near $30 an hour and doctors always make money.
Now you take waitresses. Why should waitresses in fancy restaurants make those ENORMOUS, outrageous 20 percent tips? You take a waitress in a diner, what’s 20%? Two freakin bucks! Fancy waitresses should share money with humble waitresses.
Hey… that could go for blogs too! Why should Little Green Footballs make so much dough when he should have to share with an unknown blog… like this. Hey you deserve more and you are never going to make it on your own!
But let’s talk money.
Take Oprah. Oprah should not get $257 million a year. For one thing, I don’t like how she uses her money and her hair stylist SUCKS. For another thing, I think her companies could have done better. For another thing, I don’t know what kind of bonuses she gets, but I think she gets free counseling from Dr. Phil. I bet she freakin’ doesn’t report that and its a hidden bonus.
And speaking of Dr. Phil, he gets $40 million a year and I think he would have made more if he had made better book deals and kept his marriage in tact. The latter is a failure and we should look into what kind of bonuses he gets. Because, you know, doesn’t his divorce make him a hypocrite? I don’t like hypocrites so I think he should make way less money.
Know what? If Dr. Phil bailed today, he would keep all his money, and that just ain’t fair. $40 million a year? That’s not right!
your all idiots. its called free enterprise. freedom is what the country was built on including economic freedom. pay the guy who is the reason you shits even have a job, or the reason the U.S.’s GDP has been going up 2% a year for the last 50 years. (except slightly less recently)
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Looks like the caps are here. For most people $500,000 is a lot of money and more than 10 times the national average wage. Yet it is peanuts by CEO standards, especially those at Wall Street who were making millions in salaries and bonuses. The combined bonus of Wall Street investment bankers in the “good” years was more than the GDP of many small countries. As Wall Street got more greedy, Americans and the Government turned a blind eye to the excess since everyone seemed to be benefiting from rising stock markets, low interest rates and cheap mortgages.
But times have changed and the financial fairytale is over. We now live in a new financial world now where government bailouts and regulation are part of the norm as opposed to the exception. So rather than complain about their lower salaries and bonuses, company executives and senior management should be grateful that they have a job.
I would be more in favor of government offcials - congress, president, reps - not getting paid if the federal budget does not balance.
I say, to some extent ‘YES’. At the same time, there can also be some performance based incentive, just to see that the out put is increased, as compared to normal conditions.
Caps are a good idea along with a sliding pay scale based on performance to be revisited every 5 to 10 years. They should do this for teachers as well.
You can get rich buy being a hardworking, smart, businessman, but the only way you get filthy rich is by ripping people off. Some examples: Comcast’s rising rates, gas prices, Apple’s expensive products (and I use Apple), insurance companies rising rates for less coverage, and the list goes on. I’m not sure where the line is between filthy rich and just rich, but I’ll say this I don’t even know what I’d do with a $1 million a year salary, much less $50mil.
It is amazing to me that people attack workers making $30 an hour. That’s $62,400 a year! It will get you by, but for God sakes, you’re going after those people when there are people in the same company with 3 mansions, 7 luxury cars and a yacht. I really think some people have no respect for the people who do the “dirty work” that really make the world turn. The people who work on holidays and when your sleeping. People that have to shower after work rather than before. People that provide water and electricity. People that give kids an education. People that make just enough to have a nice life for themselves yet they go to union negations and the company tries to cut their pay and benefits. Then they get told by the President of the company (true story),” if it were up to me I’d get rid of all of you and bring in people who will work at McDonald’s wages.” Why would people that make so much profit want to put the squeeze on people who just making a modest living? Because they don’t care!!! They just want the biggest profit possible and it doesn’t matter to them that you work every Christmas and still can’t afford life saving surgery. For them union negotiations is like going on a game show to try and win money for a new car. For a lot of union workers it’s their life!!!
Whatever the cap is, if you are caught going over it, you go to jail. You can keep the money but you go to jail where you get $0 a year and pay for the expenses to put and keep you there. No government taking all the money from you and no cost to the taxpayer. I’m not sure what the sentence should be, certainly years, not months. Just to be clear I am not someone who has ever personally fallen on hard times or lived paycheck to paycheck.