California CEO Pay

Kevin Drum has a post about the salaries of the top 100 CEOs' of public companies in California. Those CEOs' took home $1.1 billion in 2004. Yes, that is a big number but the top ten take home 42% of that total ($ 467.5 million). If you remove those 10, you get an average of about $7 million each. I don't think that is that out of line for running a top 100 company in the world's seventh largest economy.

I do have a problem with the way the mega earners are paid though. Most of their compensation comes through stock options. I believe that this can lead to poor corporate governance and can be bad for worker's rights. A CEO can come into a company, slash health care, short the pension fund, push up profits, and do a lot of other thing that push up the stock price in the near term, but may be bad for the company in the long term. Doesn't matter to that CEO, he will have cashed out and moved on before disaster hits.

From the LA Times

Compensation critics say they don't begrudge [Terry] Semel the $230 million he realized by exercising his past options, but they're critical of the board's decision to continue giving him additional stock options year after year.

"Initially, what the board did at Yahoo was really smart. They awarded him a huge grant of options, but some of them were at a premium price," said Paul Hodgson, research analyst with the Corporate Library, a company watchdog group. "Subsequent decisions by the compensation committee have not been as inspired. They keep feeding him stock options, in enormous quantity, and they're all at market prices. They need to find a new tool."

Semel holds rights to buy an additional 22.5 million shares, which were worth about $395 million when Yahoo put out its last statement to shareholders.

[Patrick] McGurn, who advises big pension funds and other institutional investors on how to vote corporate proxies, told his clients to vote against reelecting the members of Yahoo's compensation committee this year.

Semel's "performance was great, but the calibration is so out of whack that whether they intended it or not, even paltry performance would produce a substantial payout," McGurn said. "When the magnitude of the grant is out of line, you have guaranteed a windfall to the executive. The only thing you don't know is whether the windfall will be enormous or astronomical."

I'm not writing this as an indictment of Semel, I don't know that much about the guy. I'm just saying this isn't a good way to compensate a company's CEO.