CEO pay

CEO’s salary is a combination of wages and options. The wages are taxed at a rate of 35% but options are long term capital gains and taxed at 15%. In addition options are an incentive since the better the company performs that better the stock performs. For many large corporations the CEO’s compensation package is determined by the board of directors but they delegate this responsibility to a subgroup called the compensation committee. Members of this committee often are inside directors, that is, people who report to the CEO. When it comes to outside directors, people who work for other companies the CEO’s often pack that board with friends and many times they end up on the boards of their friends companies. It is an incestuous relationship. In an attempt to move away from this method of determining compensation a new approach has been developed. Now an expert is hired and he goes about checking salaries similar to the way a real estate appraiser checks the value of your house. He uses what are called comps, that is, recent sales of comparable properties. So this expert finds that other CEO’s in similar size companies are receiving large pay packages and thus the process is continued. Just 30 years ago the average CEO pay was about 40 times that of the workers and today it is 300 times. This change is not in small companies but rather in the very large companies but it is so great in that elite group that is has skewed the averages.