Of course CEOs are grossly overcompensated. It's all about being in the club. The board members who determine and approve these ridiculous pay packages are often themselves top operating executives of other firms. 'You approve my nine-figure deal and I'll approve yours.' CEO pay has nothing to do with performance; it's just billionaires supporting billionaires. The only way out? Shareholder revolt. And that doesn't seem likely.

Executive compensation is all about "carrots" instead of "carrot and stick". There is no "stick" in executive compensation. Perhaps if there was a way to penalize CEOs for bad performance, things would be better. Right now, there is no downside for a CEO who swings for the fences on every pitch coming his/her way. Until and unless there is a personal downside for these people, we will see CEOs squander away the wealth of this country on risky bets in which they have no skin in the game.

His exit package is absolutely too much. We need to shift globally in our thinking of what we give to these CEOs that just are not doing the job as a reward for doing poorly. Was it not the whole reason this guy was removed in the first place or asked nicely to retire from position. If they are not helping their company perform and they get removed from position we send the rest of the company and society a wrong message about poor and good performance expectations. As a JR Executive in my organization if I get asked to step away or fired, I do not get an exit package. Poor performance should not be rewarded with anything but separation from the organization.

This is a case of rewarding poor performance and shareholders being punished for their initial confidence in his ability to deliver the goods.
There must be a downside for underperformance by CEOs.

This issue is not about the size of the package, it is about whether or not an individual who is fired is entitled to any package. My contract clearly stipulates that if I am fired - for any reason - I leave with nothing.

While Mr O'Neal's departure was classified as "retirement", that is ridiculous. The bank lost nearly $8bn because of decisions he, his lieutenants and his board (because he oversaw his own decisions as Chairman) made.

I highly doubt any of the individuals lower in the firm involved with the specific transactions underlying that loss - who are most assuredly either being fired or unceremoniously "let go" - are leaving with their annual bonus, let alone any existing options.

The CEO pay issue is a red herring. People should be paid for the value they contribute - if he contributed billions of dollars of value, he should take an appropriate fraction of it. If he destroyed billions of dollars of value, he shouldn't.

This comes down to the fact that Mr O'Neil did not do his job. Part of being CEO is knowing what investments to make and what investments not to make. To over leverage the company in sub-prime debt is irresponsible, and shows a complete lack of risk management or investment discipline.

That being said I believe that he was from an investor standpoint a great CEO because he took chances, and this can be seen in the fact that the stock doubled during his tenure. However, this decision to over leverage in sub prime securities is an irresponsible decision for a CEO to make and he should be fired for it. The true track record for a CEO should be more than just the stock price but also the impact that they make on society. Management scholars all over the world have consistently spoken of the social and environmental impact that companies have. it is the responsibility of the CEO to create a strategic legacy that goes beyond his stocks appreciation, and Mr O'Neil it seems created more enemies than friends letting down all the stakeholders that Merrill's business touches; most notably shareholders, as ML's stock has declined over 30% this year.

As far as the $160million + pay package, the blame for that rests solely on the shoulders of the board of directors. There needs to be a true resurgence of ethics in this country. There are no business ethics there are just ethical and non ethical modes of behavior. The board of directors, which consists of independent corporate governance overseers should not under any circumstances be able to award such a pay package as they did with Nardelli at Home Depot, McKinnel at Pfizer, or with O'Neil at Merrill Lynch.

Why isn't this put up to a shareholder vote? The shareholders lets not forget do own the company. American citizens need to start taking a stand for what we will and will not stand for in this country from our leaders of all kinds, political, business, educational. We need to rediscover that the American dream is not obscene wealth, its living in freedom, its having opportunity to get an education and excel, its being a light to the rest of the world; a light of ethical principles, democracy and hard work, that culminate in success...and what truly is success? The ability to make a difference through our actions and with our financial resources. Your income should be in direct proportion to your contribution, and in this case Stan O'Neil should have to give up his stock options, and get no pay package or perks at all.

There is no doubt that reform must sweep through the business world, and return executive compensation to a reasonable level.

The exit package is a shame on corporate America and an insult to the millions of workers who sweat each day to make ends meet.

This is an attack on some very core values that made the western society what it is today: hard work being rewarded and bad work being punished. Here extremely bad work is being rewarded with sums that are beyond lifetime earnings of good, hard working people.

I will never ever be a customer of Merril Lynch going forward but they probably do not care about such a small fish like myself anyway; what is a 6 figure income for these big guys?

I completely agree on the above comments. I consider this type and value for a CEO compensation absurd and inducing very bad thinking about the organization. Merrill Lynch has a reputation to preserve...

Absolutely, this is an example of executive compensation out of control and Boards of Directors that are negligent and performing their fudiciary responsibilities. These "tight deals" are negotiated for CEOs coming in and have no accountability for CEOs going out.

Corporate dollars should be more wisely distributed on executives that can perform and lead and deliver value to their organizations. Until their is a marked differential on how executives are compensated, we cannot expect change. We can blame corporate noncompetitive costs on healthcare, unions, etc., but if we cannot manage better than this, the problem is not the structure, it is poor leadership and management.

Whatever happened to 'Pay for Performance'. It's all very simple. Tie C level compensation to company performance just like most all management throughout most companys. A reasonnable exit package is not a problem, but $160M should be a crime. We'll arrest someone for a drive-off at a gas station and let this kind of theft just go on untouched. I beleive it was Alan Greenspan that said 'Capitalism without ethics doesn't work'. How true.

From a CPG perspective, does a CEO 'package' really drive shareholder value? Perhaps compensation at this level should be measured over time by both above and below the line performance to deliver the true market value.

I personally think that there should be extreme tax consequences for these type of severence packages----in the order of 50%---without any loopholes. This way, the Board can approve the ridiculous $160 million package, but $80 million of it will go directly toward improving society.

Although CEO compensation appears to be the problem, this is only a symptom of a much deeper, and more serious situation, the elephant in the room that no one wants to recognize. The underlying problem is a lack of leadership within boardrooms across the country. ML states that CEOs are expected to know "what investments to make and what investments not to make". If CEOs are getting tied into the minitia of day to day operations and investments, God help us! The role of the CEO is to lead, not manage, but too many CEOs are doing just that. CEOs should be paid for defining vision, inspiring and motivating others to achieve that vision, and constantly looking over the horizon to anticpate the next threat. The CEO cannot do this alone; as Collins (2001) states in "Good to Great", one has to have the right people on the bus, and a lot of CEOs fail in this critical area. Effective CEOs establish a culture where innovation and knowledge creation abound throughout the company, where employees are proud to be part of the culture, rather than mere lackeys responding like Pavlov's dogs to the ring of the market bell. Yes, a "club" culture does exist, as Handy (1995) writes in his text "Gods of Management", among many board members, to the detriment of all stakeholders, not merely those who hold stock. ML rightly notes that a resurgence in ethics is required, but legislation such as SOX will not do the job. We need a return to character in leadership, where "values in action" and leadership by example are honored rather than vilified. We need CEOs who understand and execute honesty and integrity rather than simply talk about it. O'Neil and every other CEO who virtually steals by receiving compensation for work that was not performed should be ashamed for his or her actions - but that would be asking too much of too many CEOs who are merely opportunists. Shame on the boards who hired them! In today's fast-moving environment, boundaries are rapidly shifting, such that past success does not guarantee future success. Boards need to be seeking leaders who are adept at change, not those who are seeking stability. But in a club culture, birds of a feather tend to flock together, protecting their dearly beloved nests. Sounds like it's time to throw some birds out and find eagles who can fly!

Seems high, but I'd like to see more information on just how the money breaks down. Seems like the reports are simple new math and not really in enough detail. If someone is fired, they still get their retirement or pension plan, which often include options. I don't think the articles I've seen explain. Need more information before making a judgement.

Seems that the SEC is going to move with baby steps to bring about any reforms that would give the shareholders a real opportunity to revolt. Even with the meager reforms to date we still have the buddy - buddy relationship between money managers of all stripes and management members who are celebrities at the various investor conferences. The regulators also aren't going to take any direct action because they are largely part of the same club. As to those who say the $160+ million packages are the free market at work, I would say we ought to class this as more of an odd oligopoly at work. All buyers AND sellers in this case work together to keep prices up - the regulators, the executive recruiters, the boards and others keep the potential supply of executives small by staying lazy...

well, i think it's ok if merrill lynch's ceo is getting a rich package. after all he is the ceo of the company. you don't become a ceo overnight. so it's ok if someone recieves a good pay subject to his performance.

I think pay for performance is 80% illusion and 20% myth. The Economist had an article a about 12 monthy (or more) ago with an analysis that concluded that executive compensation is proof positive that capitalism is broken and that the market is no longer working. I agree.

I did an article years ago called "Can't Buy Me Love," and I concluded that, at a certain point, the money was just a way for one CEO to keep score against other CEOs. So let's invent another way to keep score that less financially onerous.

I wonder if businesses couldn't introduce a series of awards ceremonies (and not the Baldridge) to recognize executives, rather like the Academy Awards, Golden Globes, Emmy's, Grammy's, etc. There could be a set of about 10 different awards with a variety of categories so that almost every CEO could win something. When hiring a CEO, the company could promise to devote time and effort (perhaps a whole seperate marketing department) to helping him or her win particular awards. It might, at least, keep them distracted so they don't look so closely at their paycheck all the time.

he absolutely deserves it. you got to be at the top to know what these guys go through. all of you should get there first then we talk

Stan O'Neal has become a lightening rod, it seems, for several issues. That may not be fair -- but his sacking and the exposure of his exit package does bring important issues to the foreground. A $161 million exit deal, typical of CEOs like him or not, is an embarrassment to business. You hear business school deans preach that business is the future of the world; that businesses, not governments, have the most power to change the world for the better.
Maybe so, but until the unmitigated greed of boards and top executives is brought under control, business won't be able to get out of its own way. It's really sad and pathetic.

I agree with most of the comments above. Executive compensation for both investor owned and large not for profit's has far exceded the value that many CEO's and senior managers contribute to their organizations. Boards of Directors are grossly remiss when executives are rewarded for poor performance.
Honestly, I recommend a broad scale, shareholder revolt begin to address the absurd compensation and exit packages of aome CEO's. Both CEO's and Boards should be replaced who do not address the needs of their constituents in a fair and reasonable fashion.

One of the causes of the massive gap between CEO compensation and that of mere mortals is the way in which bonuses are allocated in organizations. I suggest a more equitable distribution that should be adopted as best practice by organizations.

I think it is fair to say that we are approaching a crisis in capitalism similar to that at the end of the nineteenth century. At that time, major corporations were clearly being run for the benefit of their top managers (who were also usually their owners). The unparalleled greed by these beneficiaries led, in the near term to the trust-busting legislation of the first Roosevelt and in the longer term to the countervailing power of the Unions aided by the New Deal legislation of the second Roosevelt.
Since the 1970's, we have seen the repeal or non-enforcement of anti-trust legislation and we have seen the collapse of the labor movement as a viable countervailing force. As a consequence, the compensation of the executive echelon (and especially the CEO) has risen from 40 times that of the average employee in the 1970's to over 400 times that of the average employee today.
This change arises from two different trends: the inability of workers to capture much of the gains in productivity for themselves (this reduces the denominator in the CEO/employee pay ratio), and the practice of paying large bonuses (almost unrelated to performance; for example in the year that ATT lost $2.6 billion, the top management team gained $2.2 million in bonuses in addition to their regular salaries) to managers in order to attract or keep them in the firm. The collapse of union power has resulted in a Federal minimum wage that covers about 60% of poverty level wages for a family of four (a much lower percent in large, expensive urban centers such as Boston). The downsizing and outsourcing of the past decade has reduced the bargaining power of professional workers in the labor market. On the other hand, the labor market for CEO’s has stayed rather strong – this, as pointed out by David Levin, is because it is a rigged market. Prices are set, not by free market forces, but by a firm’s compensation committee which is often made up of other senior executives with an “arms length” relationship with the focal firm. They may be arms length in terms of the firm’s competitors, but they are anything but arms length in the CEO market. They too are players in that game, so higher compensation for one means higher compensation for all! There is a second way in which the market has been rigged over the past five years: fraud. All those phantom profits in Enron, Qwest, and so on had as a consequence not-so-phantom bonuses to their executives. To “compete” in this rigged market for executives, other firms had to raise their compensation levels at the CEO and executive level. Even after the bursting of the economic bubble, we see little decline in the compensation of executives (in the past three years, the total cash compensation of the CEO of ATT has doubled from $2.2 million to $4.8 million; while the stock price almost halved).
Over the past few years there have been attempts by stockholders to bring an end to excessive compensation, but this has been limited thus far in its success. What is needed is a change in climate, a change in the culture of best practice in organizations. The current culture since the downsizings of the late 1980's and early 1990's has been a view that top managers of a firm matter and that everyone else in the firm is dispensable. This attitude is exemplified by the enormous bonuses (in the range of 100%+ of salary) given to executives compared to the modest bonuses of 8% of salary given to employees.
In an organization, everyone makes a contribution to the success of the organization. For the organization to be successful, each has to do his or her job effectively. That contribution is of course greater for the CEO than for the janitor, or even for the research scientist at her bench. These differences in contribution can and should be reflected in different salaries: a living wage for the janitor and a good differential for the research scientist, and a large differential for the CEO. But when it comes to the bonus awarded for the firm’s performance, let equity reign. Let every member of the firm get the same percent bonus. Let everyone get 100% of salary or let everyone get 8% of salary. Reward differential contributions with different salary levels, but let the bonuses be an equal percentage. If this were adopted as best practice by the best firms and by the powerful institutional shareholders, I believe that the excesses we see today would be banished. This is a stronger set of best practices than a simple goal to restrict CEO compensation as it provides clear links between CEO bonuses and employee bonuses. The adoption of such a best practice will not solve all of our problems with compensation excess. But it is a start that will, in turn, lead the looming crisis in capitalism to recede.

Let the pendulum swing back to an eye for an eye and a tooth for a tooth. In an age of accountability, responsibility and integrity - the lack thereof - his compensation package should go back into the repayment of the debt. He may have risen, but his loss to the company leaves me feeling homeless. I'm still reeling over having to pay Bob Nardelli $210 million to retire from Home Depot.

Outrageous is the right word. if a company makes $34.7 billion net profit in 2006 and pays one non-performing CEO $160 million in 2007, that to me is 'aggressive reward and compensation' at the expense of shareholder/investor value. I think it is time executive compensation, especially for exiting non-performing CEOs is governed by SOX and internal audit controls.

It's ridiculous.

Instead of telling your kids to work hard for great results to obtain their rewards, this is teaching them that if they negotiate the right deal upfront, then really screw up, the people who appointed them will come to hate them so intensely they will willingly pay them such an incredible amount to go and get lost it will make them rich beyond their wildest dreams.

It that really the message we want to be sending?

It is incumbent upon the shareholders to fix this insidious moral and ethical rot. It won't happen overnight. But it must happen.

This is not correct, WHY on earth should someone pay for bad decisions where the company lost a gross 8 billion USD???

Who IS going to answer that question??

He must be told to leave with nothing else than his last paycheck and probably a namesake certificate for services!!!

- CXO wannabe

The exit packages are decided when the CEO's come on-board, it is decided at the time when the company is either in a good shape or having troubles.

I would say the shareholders should have a say in the decision of this package. They should decide that how much % of the annual salary should be set as an exit package. This way we can at least have some control over these hefty payments being made to CEO's when they exit.

I am not against giving exit packages, but they should be reasonable as my fellow participants pointed out they should be based on asset addition to the organization. So the shareholders should have a say, whether the CEO's should be paid or not paid these exit packages.

Someone said that, we should talk only when we reach this stage, I would say - we all work hard and get our salaries and then it’s us - the common people who invest in these organizations. So why we let anyone else take away our hard earned money. Let the CEO also earn his benefits based on the company's performance.

Part of being paid big bucks for being a CEO was the risk of losing it all if you failed in the job and were removed. What happened to that principle? Pay for shareholder return, not individual gain.

CEO's deserve competitive (sometimes very large) compensation packages when they are able to lead a companies shareholders to excellent gains. In the case of O'Neal, he has destroyed shareholder value and should incur reduced or no parachute.

I agree with Andrew ( posted on October 31, 2007 08:32), there is an obvious conflict of interest if CEO and his board is able to decide their own pay package. We have a very mature democratic system in this country why apply to our politicians ONLY?

I think Corporate America (so does in many other countries over the world) is misusing the true meaning of ‘free enterprise’. If that freedom is needed to build on others scarify, it is time for those politicians, regulators or industry leaders who care to draw a line on it.

Not only shareholders and probably stake holders should have the full right to determine who to pay what; pay packages should be linked with their ‘net and real’ performance. We all know that books can be manipulated or what they called it ‘adjusted’ to achieve a certain requirement; tax minimization is the obvious one but not all the time. In the real world the market is never run of cases that books are being adjusted to the reverse side enhancing performance temporary to stimulate share price or justify executive big pay packages.

In the ethical side of the picture; even a pay package is justify, is a person really worth that much by making that right decision at the right moment because he is sitting on the right chair? There are people who work with their heart and soul and being paid not even close to a tiny friction of those figures. Do you think they are all not smart or experience enough? If lucky is always the answer ones want to refer to, then we better go and buy a lotto ticket after reading this.

Merrill Lynch needs to take a cut of the sub prime securities market in that moment of time to avoid losing ground in market share is basically an unavoidable business decision. While the CEO may still be eligible to claim credit on this, however to over leverage it without working out clearly the down side or having a good risk management plan in place is definitely irresponsible.

Posted by David Tong

I have always thought that a company is a family...we pursue the happiness of our members, raise our wealth, educate our children, encourage values all over the house and care for each others back. But nowadays I don't understand if my concept about the family is the right one because I see everyday that the kids are working like crazy while their parents go an live first-class. The house is falling apart but we keep the country club stand. I hope one day they understand that commonwealth always end at individual wealth.

Dear All,

If a CEO is a decorative item and having intrinsic value, it is not surprising to offer huge paycheck to respective CEO.

Perhaps we can do a scenario of without CEO and with CEO Analysis on financial impact.

Could it be that there is no other capable leaders in position to oversee the business which means the CEO is the only one most qualified and experience to steer the business of 5-10 subsidiaries with unit managers only.

It can be seen from organisation chart and business entities structure within the group or company/corp.

Other from surface any CEO is seen overpaid. Perhaps CEO is in to shoulder damage control whenever there is a disaster? Well only the founder knows.

TAKE CARE CEO OF TODAY.

World is more challenging and skeptical nowadays.

Best Regards,

Alan Goh ACMA(U.K)
Chartered Management Accountant

I agree that this was too much in the form of compensation. however, Bob Nardelli had the same isues- why was this not so much of a big deal at that time.

The ultimate responsibility which lands on the shoulders of a CEO is to maximise the shareholders returns, and this is no rocket science. Every decision that flows from him should serve this purpose. And if this is met, then the corporate world regards that as a "fair compensation".

But we are looking at the antipode now. Shareholders funds were flushed down the drain due to inappropriate decisions and further sucked in the name of "retirement compensation". CEO's should think saner..

Of course! With 4 billion people making a dollar a day and 5 billion human beings never having owned a car or truck, donate some of that gold!!! Help the world!!! Help your fellow men and women!!! Ask yourself this: for all the wealth your baby boomer generation has created, what good for mankind has come of it???

The issue of CEO paychecks has raised serious debate over the years as it can be testified by Joseph stiligez in his best selling book the roaring nineties,they are more scenarios like the
issue of the Enron scandle.In any case this might never change until shareholders and board directors come to a concesus on how much one CEO may walk away with, it also depends on the working culture of the firm and what value that CEO adds to the company and if indeed growth and revenue is cultivated and to what extent in my opinion i feel these are some of the issues that shareholders and investors must consider hence being lured to sign such hefty packages not forgetting that CEO'S are just human beings who ve their own agendas.

Sir,

The example cited is not the first of its kind nor will it be the last.

If it is accepted that the purpose of business is to create value, and if it is further assumed that the CEO has an important role to play in this process, then, by all means should CEOs be rewarded for good performance. By the same yardstick, when a CEO fails to create value or worse, dissipates it, there must be a mechanism to ensure a deterrent of such magnitude that others would shudder to make a similar mistake.

Going by the agency theory concept, managers are only trustees of shareholder wealth. Thousands or hundreds of thousands of shareholders cannot manage a business and hence they repose their faith in a board, a CEO and other managers. Where this faith is breached, misused or abused, there is no case for "rewarding" such managers out of what are essentially shareholders' funds.

There is considerable talk of leaders having to walk the talk. Walking away with someone else's money can hardly be described a leadership trait. What kind of role models are these managers for young people?

The ethical dimension cannot be ignored either. Rewarding managers for poor performance violates the golden rule and does not stand the ethical scrutiny.

The most disturbing aspect of the issue is not just the money that is paid out. These executives often get "rehabilitated" after a cooling-in period to the detriment of another organization and another set of shareholders. In the final analysis, stakeholders might start losing their confidence in the system itself. An implosion would be the result, whether anyone likes it or not.

One can satisfy one's needs. One may find it hard, if not impossible, to satisfy one's greeds.

Warm regards

I am of the opinion that there should be sense of equality in the payrolls of the officers of any organizations. Be it a low level manager, worker or the CEO. Fair system of compensation should exist. One should remember that organizations can not be run by only the CEOs, there is a much much more valuable contributions coming from all corners of the organizations, therefore fair play should be the norms of the day. The practice of misusing their powers and authorities to get the best deal out of organization should be discouraged. A Monitoring body comprising of members from all stakeholders of an organization should approve the package of CEO.

Moral turpitude aside, the pension package was a matter negotiated contract. The real problem is systemic. Corporate officers responsible only to themselves, cloistered on the top floor are free to hatch self serving strategies to loot their corporations.

The whole concept of the command and control CEO position must be deleted from corporate consciousness and culture. The whole trend of business and consumption is toward user participation, customer-designed products, consumer product evangelism, etc.

CEO is an antiquated, outmoded position stemming from old fashioned industrial era structures.

We will always think why we have to pay so much money to CEO who make huge losses for company when they exit. It will be rational to asked questions on how we compensate CEO when they excel in breaking the norm and lead the company to quantum leap to next level. In my personal opinion, we have to pay him when he perform meeting goals of the company. If he fail and made huge losses like this high profile case,compensation will be half according to his performance instead of getting 100% of $160 million is already good enough. He definitely is responsible for his action and approval in the business with high risk and risk management is not in place to monitor.
The investor money or public investor have trusted him in safe guard to invest with him and company. If we are losing money and still have to pay huge some of money for outgoing CEO. I find it unrational and all CEO cannot perform also get a huge compensation even can't perform. We will compensate CEO with $160 million if he has contirbute in term of ROI.

Yes, CEO compensation has been really high and that too the kind of benefits they are entitled to are also touching the peaks. There must be kind of gauge to measure the competency of a CEO and assign them the proportional compensation package and also with the stakeholders best interest. The case of Merrill Lynch is a clear indicator of uncontrolled advantage for a CEO.

Is Merrill Lynch’s CEO Exit Package Too Rich?
Sir
Reminds me of Alan Greenspan. Always we deiced the way we think at the last moment. Let me elaborate. Alan Greenspan left the office and starts talking about the Iraq war. Colin Powell after the plastering the WMD left all untouched. Tony Blare is asking the publisher to write his biography in Sates. The fires and the Tsunami victims do not have the homes and we talk in the holy language. GOD IS WITH US.
If there was an error, why not tackle this at that time rather then after all go poor. Remember Enron? Same fate.
I thank you
Firozali A Mulla MBA PhD
P.O.Box 6044
Dar-E-Salaam
Tanzania
East Africa

Dear Paul,

Greetings;

The people who reach at the top of Everest Tip, be it governmental, social or commercial entities are not usual or stereo typed people. The rise to such levels is in itself a sign of being exception and depiction of depth that these people embody. Why I call it an exception because limited availability of such Everest tips and volumous members of a society vying for these makes the case of a very very low probability in terms of success hit. This nature of equation requires an extreme onus by a person to figure and sharpen the skills to capitalize on to reach while performing during the progression on the path treading towards called Everest Tip. What the society both governmental and commercial society has to ensure is the unbiased and rewarding road to these positions and the rise of people to such slots particularly from scratch clearly endorse that the society is conscious of their efforts and does reciprocate by rewarding them. As they performed, they moved up.

What happens when they reach top?

While they move up, they endeavor to amass more power to enjoy freedom for planning and execution and during this course they start encircling themselves with like minded people or the people who have their own mind set but are not ready to challenge these people moving up. Since every one is driven out of self interest and not mutual interest, followers ensure the continuity plus more enhanced perks and leader gets ecstasy in status quo. For a governmental head the amass of power means more authority and influence for more popularity to ensure the presence of the continuity. However, a commercial head when he/she reaches top, his appetite for career gets subsided and he knows that’s his end and he cant stay more then certain period as one cant stay at the Everest tip for indefinite. His mind set which is already molded for commercial gains not popular ones, compels him to amass as much money to look for his retirement life that has already become lavish and glamorous because of higher financial gains due to scarcity of such people. This is a universal phenomenon now that such people when they reach top, start working on to get hand picked for public placements, therefore indulge in status quo and spares more time and energy for socialization in pursuit of a renewed career objective.

What Next?

What academia and corporate world has to ensure is that a certain degree of human quality enhancement budgets are enhanced for a more supply of such people. A tilt in demand and supply equation will have an impact on such high perks.

Let these people compete for the slots rather corporate world compete by chasing and offering more to get these people on board.

Farooq Ahmed
Director Marketing

As an ex-ML long term employee and current stock holder, I have no problem with Stan's compensation nor the amount of accumulated wealth that he has EARNED whilst at ML. Stan has been paid well over the years he has headed ML, but keep in mind the profits and value that he added to the company and its stockholders during that time.

If you look into the details, Stan is NOT getting a termination payout. Rather he is leaving the company with his accumulated deferred stock and options grants earned in his 20+(?) years with the company. Yes a good lump of this would have been awarded to him in the last few years in his role as CEO, as a result of the company's performance during those years. Additionally he would have a large lump of stock & options from his other roles at ML, including an Investment Banker, CFO & head of Private Client. Most of this other stock/options would have been awarded when the stock price was 10-20% of the value it is, even now.

ML have a "retirement" plan where if your age + years of service exceed 45 yrs, you can "retire" from the firm and retain all your accumulated stock. The only condition is you may not work for anyone directly completing against ML or poach ML staff for a period. When i left ML a little over 2 years ago, i "retired" too..at the ripe old age of 41. Unfortunately my accumulated stock etc were 0.06% of Stan's holdings, so i am still a wage slave, but due to Stan's good management of ML over the past 6 years the value of my stock has increased 40%.

So my final comments are:
1. get your facts right! It wasnt a $160m payout!
2. if you want great results, you gotta pay for them, but
3. Stan and his team did screw up on the firm's investments in low doc mortgage back bonds etc, so it was time for him to move on.

Cheers

Hi Matt,

Thanks for your insightful comments. Please note that in the post that prompted this discussion, we didn't say Stan O'Neal was receiving a "$160 million payout," but rather that he "stands to gain as much as $160 million from pension plans and stock grants." I believe this is correct. That said, your points are well taken and most appreciated.

Best Regards,
Paul Michelman
Director of Content, HarvardBusiness.org

Paul
Tks for your comments too. My "get your facts right" comment wasnt actually addressed at your initial post (sorry i should have made that clearer), but to the contributors to the blog, who seemed to miss that critical point completely!
Cheers...Matt

Compensation packages need to be transparent to shareholders. If you make a deal you're stuck with it. What irks me is when some person fails miserably as CEO and then gets hired on somewhere else.

Michael
If you look at any major listed corporate's annual reports and other governance releases you will see that the directors' and senior employees' are disclosed to the market, analysists and most importantly, the shareholders. If fact in most major markets around the world the remuneration of the CEO and directors is directly approved by the shareholders at the Annual General Meeting. Usually the compensation committee, made up of directors, assesses and approves the remuneration of other semior employees and makes recommendations to the whole board.
As ML started off the thread, have a look at the annual reports on http://ir.ml.com/index.cfm to get a copy of the FY06 annual report. Have a look at the AGM presentations and other disclosures.
The shareholders cant say they didnt get value creation from Stan in prior years - look at one of the share price graphs over the past 5 years. This year they definitely didnt get it and the directors, as the representatives of the shareholders, have asked him to leave. As far as I'm concerned the systems works - at least on an economic, maskets driven basis.
I would also like to add however that on a moral or equity basis, $160m is a lot of wealth - does one person need this much money? - definitely not. But I know, especially given his personal background (he is the grandson of a slave and started his working life on a GM production line), Stan is very socially responsible and supports considerable good causes.
Cheers....Matt

Apart from a founder of a company, there is nary a CEO around that has earned the compensation they receive. All compensation needs to be tied to a ratio of the workforce in some manner. Stock option awards need to be granted to all members of an organization in direct proportion to their annual wages. That will tie everyone into the organization and it is everyone who must be doing their job for the company to grow. As it is, CEO's come and go every 18 months or so and have little to nothing to do with the success of the organization and more often than not tear it down. Until everyone is tied to the success of an organization we will continue high turnover and lack of respect from the masses of employees in management.

Shareholders need to put a stop to these excesses!

Executive compensation has spiraled out of control. However, it looks even worse in comparison to staff compensation that does not keep up with inflation and general costs-and further increases the divide between those with access to top medical care and educational institutions.

That being said, there are other factors to consider:
When a staff member loses their job, they have some anonymity. An executive's dismissal is generally widely publicized and covered in international media. Might it be that someone in such a public position is compensated for a public lashing, should anything go wrong?

Further, I agree with reward and punishment for performance - but rarely are these CEOs starting for scratch. Generally, it would take years for them to clean up wide-spread institutional and bureaucratic problems within their companies. And, unfortunately, the public, with access to minute by minute stock price changes, is not forgiving if stock prices fall - becase a company needs to make some investments or take some risks to fix things. How many CEOs are given several years to look at what they can accomplish - and fix.

So, yes, executives are overcompensated. But, while there is a problem - there is no easy fix (as I'm sure they are aware...) And frankly, if I had a family, would I turn down a $160M exit package to give my family opportunity, access and financial security - and maybe even take it to be a stay at home parent? Of course I'd take it! And, it wouldn't be for selfish reasons - personally, I don't need a $100M yacht or home - rather, the money would be meant to protect and secure those around me. To give my family access to whatever they need. To give my kids access to an education that won't leave them buried in debt for the rest of their lives. To allow them to walk away from bad job choices withouth worrying about the cost of health insurance.
So, maybe we need to look at what kind of incentive can be provided to encourage the CEOs to be less financially secure than their peers? How do you entice them to take more socially conscious positions and compensation packages?

Certainly CEO pay, and more specifically, exit pay have spiraled out of control. The problem lies with the way Wall St. works today. While many investors are in it for the long term, valuations are judged on a minute by minute basis, and at the longest on a quarter by quarter basis. At this rate there is extreme pressure on CEO's to make the stock perform and/or make changes to very large and complex corporations very quickly. This pressure combined with the fact that being fired will be a very bad mark on their resume is a reason for the high pay. Also, the fact that CEO's and the company's board are in bed together don't help. I feel boards should be more responsible and that the SEC or regulation should do more to seperate boards from CEO's. This would allow a CEO to run a corporation better and the board to do better at being responsible and watching stock value. Finally, shareholders should be able to have more say and not just the Carl Icahn's and Prince Allaweed's of the world.

Abuses of this sort will continue with increasing impunity as long as the American voters, consumers, tax payers and shareholders do not take immediate and positive action against politicians who put the interest of the party and corporations before the interests of this country and its citizens; against corporations whose greed for profits are selling out this country and its citizens by outsourcing and who reward its CEOs who steal and cheat from the shareholders; against groups that are trying to destroy the traditions that made this country and its citizens the greatest.
We really need to Vote the bums out; Stop buying products that are made outside of the USA (particularly those from China); Do not allow minorities to dictate to the majority; Impeach members of the Board of Directors who award outrageous pensions and bonuses to their CEOs; Take action to make our news media report the truth and what we really have the right to know in order to make intelligent decisions at the polls, at the stores and at shareholder meetings.

I am only a lowly Thunderbird MBA, but was overcome with dread in any corporate setting I have ever worked in. Greed, dishonesty and such have overshadowed things for many years now. Having voted a person like George W. Bush into office (twice!) is just another example of these excesses. It will hopefully end when the current administration fades away - provided that not too much damage has been done already.
If a natural reversal does not occur soon then capitalism as-we-know-it will take the same exit as did communism.
Making money is honorable and a requirement to "stay in business" but examples like this are bad news. May we be oversome with sanity some day soon.

CEO compensation has certainly overreached its value. I truly find it hard to believe that only a few individuals have the "skill" required to run a company. Should the be compensated for taking risks, making tough decisions, providing an image that helps generate revenue, and providing a guiding direction to allow investors AND employees what the future holds? Yes they should. The last item has only been provided by a very few leaders. I am generally loathe for any type of government involvement, but companies have grown so large and boards so exclusive that this is really a new form of monopoly that does hurt capitalism. I don't believe any executive should be provided conditional compensation that is more inclusive than that of any employee. Wouldn't that restore a lot of faith to employees and investors? In other words if a sales manager had not been making the numbers to the extent of termination, that sales manager would NOT get to leave with stock options.

How much do you pay for key people? People that can change the course of a company, of possibly an industry?

Professional sport franchises have been signing quarter billion dollar deals recently. When you ask the question why, the answer is that the player makes for more than that for the franchise. Paying top dollar for high value players has risks, as does any other major business decision; but hopefully the decision was made with appropriate consideration, deliberation, and profit potential.

The questions is not how much great leaders are worth, but who decides on how much? If executive compensation decisions are made with appropriate consideration, deliberation, and profit potential, by people whose jobs are accountable to the shareholders, and without a conflict of interest, then they will normalize.

Raising an eyebrow or our voices on executive compensation will not get anything done. What will is structuring corporations to make the decisions by the right people, for the right reasons.

When are the stockholders of publicly traded companies going to start firing the board of directors of so many companies that have lost sight of the legitimate right of stockholders to hold these companies to even the remotest sense of decency. If it walks like a duck and talks like a duck...... 400 times the average salary of company workers is starting to actually look good. What does the Merrill Lynch severance package of 160+ million package comapre to the average Joe in America? I'd say a tad more than 400+ times!

CEO's are paid based on human capital. They are supposed to have superior knowledge and expertise, however is this true?
I think we could have the same results with a number of CEO's because decisions are made by a group of people and then approved by the CEO. So yes, CEO's are grossly overpaid, but they're also overworked. They work 100 hour work weeks; not healthy. I think that you'd actually receive better decisions from CEO's if they weren't worked like slaves and we hired additional help by giving them lower pay.