The board. The board. It's always the board. I am talking about how CEOs talk about executive pay. They say they are getting paid by an independent board and you should take it up with them, not the people who get the compensation, if you think they are overpaid.
We heard that from Jamie Dimon, the CEO of JPMorgan Chase (JPM) Sunday night on "60 Minutes." We heard it from Dennis Muilenburg from Boeing (BA) last week at his appearance in front of Congress.
What you never hear, though, is how it works -- what's the way these executives are awarded much higher pay packages than the rank and file, how it happens. It's something that does seem very egregious when you consider the $31 million that journalist Leslie Stahl said Jamie Dimon made last year. That is obviously far more than the bank tellers make, or the loan executives, or back office factotums who, of course, are anything but.
Having been on a public board, I know how it works. The compensation committee is made up of well-meaning people who tend to want to reward the CEO for a job well done. They don't want the CEO to leave, or in this case, I think, to retire, because he is the best CEO in the industry. There is simply no doubt about that. They often rely on consultants to be sure they have the right salary and bonus vs. their peers. That's how you end up with pay packages that keep going higher and higher for the execs, while the workers get meager increases by contrast.
Now, Stahl made the point that it seems pretty ridiculous that he makes that much money, and he could give some back, which is his purview. But I thought his response was very atypical of execs. He said he would be willing to pay more in taxes. To me, that's a highly unusual stance among executives, one that most would balk at.
Why is this such an important issue right now? Because of the tremendous disparity in income in our country. U.S. Sen. Elizabeth Warren wants to bring back the day during the President Reagan era, when execs didn't have humongous pay packages. To do that, she wants to create an Office of United States Corporations in the Commerce Department that would regulate any company with more than a billion dollars in sales to obtain a federal charter of corporate citizenship. These chartered companies would be required to have boards where workers make up 40% of the boards of directors.
I have to admit that if you wanted to return pay packages to the old days, the plan might be a good one. No board would be able to avoid putting a worker on the compensation committee.
But I think that kind of intrusion seems wrong-headed. The fact is, what should matter is this: How did the shareholders do under the CEOs? Somehow what was left out of the "60 Minutes" piece -- and I wish Jamie had been able to bring it up --is how has he done for his shareholders. The fact is, Jamie has crushed it vs. the competition. He has made his bank the premier financial institution in the world.
To me, the better way to look at his compensation is to look at him as if he were a great athlete. I know that any major bank in the world would top that pay package if they thought there was even a chance he would leave. He's given you a 365% total shareholder return since he took over in 2005. It's almost unfair to compare him to anyone else, because almost all of the other CEOs of banks are gone, and many never made it through the Great Recession.
That's how I value him.
How about Boeing's Muilenburg? Very different. First, when he was asked in Congress about how he could take his pay package given what's occurred, he, too said that it was up to the board. But then, after some soul searching, and perhaps prodding, he asked the board to waive his bonus. I don't know why he needed board approval, but that's the right thing to do.
I believe Sen. Warren's views are resonating, because there is a growing sentiment that CEO pay is just out of control. Is a corporate charter and more regulation the answer? I don't think so. If you think that a CEO is overpaid, you can do something that's hardly revolutionary: Sell the darned stock. If everyone thinks like you, the CEO will lose his or her job. Maybe that's all we can do, and it's not egalitarian. But nobody ever said shareholder democracy represents real democracy. It's private enterprise, period. You can get mad as hell and not have to take it anymore by selling the stock of an underperforming CEO and moving on.
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