CEOS’ PAY RISING ‘BRISKLY’

“The idea that high CEO pay is ultimately due to poor corporate governance is a commonplace, and certainly there are many companies where the relationship between the CEO and the board of directors (which in theory is supposed to be supervising him) is too cozy. Yet as an explanation for why CEOs get paid so much more today than they once did, [Joseph] Stiglitz’s argument is unsatisfying. After all, back in the 1960s and 1970s, when CEOs were paid much less, corporate governance was, by any measure, considerably worse than it is today, not better. As one recent study put it:

“ ‘Corporate boards were predominately made up of insiders…or friends of the CEO from the “old boys’ network.” These directors had a largely advisory role, and would rarely overturn or even mount major challenges to CEO decisions.’

“Shareholders, meanwhile, had fewer rights and were less active. Since then, we’ve seen a host of reforms that have given shareholders more power and made boards more diverse and independent. If CEO compensation were primarily the result of bad corporate governance, these changes should have had at least some effect. They haven’t. In fact, CEO pay has continued to rise at a brisk rate.”

James Surowiecki, “Why the Rich Are So Much Richer,” in the New York Review, September 24, 2015, pp: 32-36.