May 26, 2017
That’s the question the board of directors of Charter should be asking, but I suspect they never do. The company scored first in the NYT’s annual compilation of CEO pay packages, coming in almost $30 million ahead of CBS, which is number 2. Of course, if the CEOs earned less than the other top people in the corporate hierarchy would likely get smaller paychecks as well. And, it might be harder for the presidents of universities, foundations, and non-profits to explain the need for seven figure salaries for their work.
It seems unlikely that directors ever push in a big way for lower pay for CEOs because they have almost no incentive to do so. More than 99 percent of the directors put up for re-election are approved by shareholders. This is because it is very difficult to organize among shareholders to unseat a director. (Think of the difficulty of unseating an incumbent member of Congress and multiply by about 100.)
As a result, there is no reason to raise unpleasant questions at board meetings. Even though they are supposed to serve shareholders, which means not paying one penny more than necessary to CEOs and top management for their performance (just as CEOs try to pay workers as little as possible), their incentive is to get along with top management. The result is the upward spiral in CEO pay that we have seen in the last four decades.
A big part of the problem is that asset managers (think Vanguard and Blackrock) routinely support management slates as they vote trillions (literally) of dollars worth of stock held by people in their 401(k)s and IRAs. These asset managers care more about staying on good terms with top management than making sure they aren’t overpaid. This creates a structure where ridiculously rich CEOs, who are usually big celebrants of the market, are effectively shielded themselves from market discipline. Isn’t that the way markets are supposed to work?
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