Sunday, February 1, 2009, AM | Leave Comment
USA Today online reported that President Barack Obama said Treasury Secretary Timothy Geithner soon would announce a new strategy “for reviving our financial system that gets credit flowing to businesses and families.”
The President said “We will help lower mortgage costs and extend loans to small businesses so they can create jobs. We will ensure that CEOs are not draining funds that should be advancing our recovery.”
I see three things the President mentioned:
- Lower mortgage costs
- Extend loans to small businesses
- Ensure CEOs are not draining funds
That’s all good and dandy. But I don’t understand what he meant by the third item, namely, “CEOs are not draining funds and rein in – that means restraining – free-spending executives.”
If he was ever successful doing that, I think, that will be among his greatest achievements.
The ratio of average CEO pay (now $11.8 million) to worker pay (now $27,460) spiked up from 301-to-1 in 2003 to 431-to-1 in 2004.
If the minimum wage had risen as fast as CEO pay since 1990, the lowest paid workers in the US would be earning $23.03 an hour today, not $5.15 an hour.
In 2007, the CEO of a Standard & Poor’s 500 company received, on average, $14.2 million in total compensation, according to preliminary numbers from The Corporate Library, a corporate governance research firm. The median compensation package received was $8.8 million
Moral of the story
A reasonable and fair compensation system for executives and workers is fundamental to the creation of long-term corporate value. However, compensation for top executives has grown exponentially while pay for the rank-and-file employees has remained almost stagnant.
From all the news and finance gurus, I gather this would be the first time in history, a U.S. President would ever attempt to curb these exorbitant compensations the C-Level executives are being lavished upon. If successful, that would be a huge achievement of his all by itself.
What do you think?Facebook.com/doable.finance