blinders on pay

The New York Times today ran an op-ed piece that made me just shake my head. Norman R. Augustine, retired chairman and CEO of Lockheed Martin, writes to complain about how Congress, "in its wisdom", limits how much of a CEO's pay may be written off as a business expense to $1 million annually -- and even less for some companies that do business with Uncle Sam. And old Norm isn't happy.

So Norm comes up with another proposal: increasing tax revenues by jacking up taxes on the income of "superstar athletes, rock stars, movie directors and a few others". Going for cheap nods of support, Norm suggests that Jason Giambi, Barry Bonds, Latrell Sprewell, Howard Stern, Kobe Bryant, and Randy Moss could all spare a few bucks -- it would be "rough justice."

Norm's missing the point on several levels. There is no cap on how much CEOs can be paid, just a limit on how much of this salary can be applied to reducing corporate income taxes. This was NOT done to raise revenues, but rather was to protect the SHAREHOLDERS of corporations. After all, who do you think pays when somebody like "Kenny Boy" Lay or Bernie Ebbers pulls in well over $100 million a year? Companies can still grossly overpay CEOs if they want, but at least the taxpayer won't have to subsidize it. If somebody is really worth more than $1 million a year to a corporation, they'll find it worthwhile to pay that even without the inducement of a tax write-off.

It's absurd to compare the income for a pro athlete, musician, actor, or director to a CEO. Do baseball players get to pack a board of directors full of their cronies, who will then directly or indirectly approve the compensation for them? Nope.

Nobody is holding a gun to the head of the owner of pro sports teams, Hollywood studios, or record labels when they decide to shell out major bucks on Tim Duncan, Steven Spielberg, or Britney Spears. They are making a calculated business decision that paying these talents will pay off in profits and/or championships. And whether through on-base percentage, box office take, or CD sales, it is possible to quantify the return you get on these people and compare it to their peers in other organizations in determining whether to offer them a raise when their contract is up. Unlike CEOs, who will take multi-million dollar bonuses as a reward for a 5-year, 15% hike in the company's share price when the overall market was up 25% over the same period.

There have been studies that undercut the idea that there are only a very few people capable of being great CEOs. Pay for CEOs and other senior executives has been grossly inflated by the practice of not having to expense stock options, absurd perks like luxury apartments at a fraction of market rents, unfettered access to corporate jets, etc. Trust me, there are plenty of bright business types out there chomping at the bit to run an organization who will do it gladly for well under $100 million a year.

If the player/director/actor/singer asks too much or delivers too little, they won't get a contract. It's quite simple. Not like the farcical charade of having a group of your friends sitting around saying "how much should we pay old Norm? How about $50 million, and while were at it, bonuses all around!"

Norm, quit your moaning and enjoy your retirment. I'm sure your pension is one most of us working stiffs could only dream of.