Reason Writers on the Tube: Watch Katherine Mangu-Ward Talk CEO Pay on CNBC

Senior Editor Katherine Mangu-Ward will be on CNBC this morning, talking with Los Angeles Times columnist Michael Hiltzik about his recent column on CEO pay. Sample passage:

As I beheld the sight of Robert Rizzo and his fellow Bell municipal bosses being frog-marched into court the other day on charges of having overpaid themselves outrageously at the expense of their suffering constituents, the following thought came to me:

Why not Ray Irani?

Maybe it's unfair to pick on the longtime chairman and chief executive of Los Angeles-based Occidental Petroleum, since at $31 million last year, he places only fourth on Forbes' latest list of America's highest-paid executives.

If one is looking for overpaid CEOs, as ranked by their compensation relative to shareholder return, General Electric's Jeffrey Immelt, Verizon's Ivan Seidenberg and many others might deserve to stand ahead of Irani in the queue for the orange jumpsuit. (Those rankings come from Forbes too.)

But to some degree they're all emblematic of the No. 1 scandal of American business — executive pay that bears scant relationship to what these people are worth.

Tune in at 10:45 for all the action.

Comments

[?]

Hiltzik doesn't know the difference between public and private? Does he have a background in economics? Is he a reporter or just a columnist? Because if he is the latter, he is allowed to lie, according to the new journalism, and few will call him on it.

[Ben in DC]

I am a hard core libertarian, but I actually see CEO pay as a market failure. The system needs to be reformed, due to the relationship between institutional investors and the CEO's. Companies are no longer being run for the benefit of their shareholders, but for management.

But let me be clear: I do not believe the solution is government laws governing executive compensation, but rather, reformation of laws governing corporate elections, and the independence of directors.

[Old Mexican]

Re: Ben of DC,

I am a hard core libertarian, but I actually see CEO pay as a market failure.

There's no such thing as "market failure," just like there's no "evolution failure" just because there are no unicorns.

Companies are no longer being run for the benefit of their shareholders, but for management.

Yeah . . . It's not like stock holders can get rid of their stock if they don't like something . . . Right??

But let me be clear: I do not believe the solution is government laws governing executive compensation, but rather, reformation of laws governing corporate elections, and the independence of directors.

[Old Mexican]

Darn. Disregard the last paragraph.

[Pro Libertate]

There are some rather odd laws protecting boards and management to the detriment of shareholders. While a bit of that is a consequence of limited liability, most of it is government and management having too close of a relationship.

[Tony]

OM you do realize your attitude is that of a religious zealot who worships the market, right? The market should be a tool for people; it should work for them, not the other way around. And if, as you imply, it works like evolution, then that's definitely an argument in favor of intervention--natural selection is no model for human societies, since the dominant force in natural selection is failure and death.

[The Gobbler]

"The market should be a tool for people"

Speaking of tools...

[heller]

I just love how Tony twists the words of others. There is no such thing as a market failure, not because we have faith in the market to always have an outcome we like, but because there is no set outcome of the market. It is a collection of trade actions. The market "works" for whoever makes it "work." It is not a blunt "tool for people," it is a framework of rules. You have to create your own "tool" within that framework that will do something for you.

Also, OM compared the market to evolution on a specific point. You then said that he "implied" similarity between the market and evolution on a totally different point. That is a lie.

[Tony]

OM consistently makes this comparison and I consistently point out to him how dumb it is. He thinks evolution is a process by which things are perfected over time organically. That's true, but it ignores the more important fact that this results from most everything else dying off. He thinks that's somehow analogous to a free market, not realizing that if he's right we should do everything we can not to have a free market.

[heller]

That's true, but it ignores the more important fact that this results from most everything else dying off. He thinks that's somehow analogous to a free market, not realizing that if he's right we should do everything we can not to have a free market.

Why? Because when a company isn't producing things that people want, they don't make money? Is it a bad thing that in order to be successful in the market, you have to have things that people want to buy?

Also, who's we, Tony? Everyone who is participating in the market is doing so voluntarily. If they aren't, then someone is committing a crime against them. Regardless, it takes an enormous amount of hubris to think that you can stop such a large number of humans from doing what they want to do.

[heller]

Lastly, if you don't want CEOs to be payed so much, don't give them billions of dollars when their companies fail. Durrr Tony.

Or would that be too much "like evolution" for you? Can't have any big companies die so innovators can move in. Duuuuuuuurrrrrrrr Tony.

[Shannon Love]

Tony,
...since the dominant force in natural selection is failure and death.

Well, no. The dominant force in natural selection is variation/diversity. Without that, it doesn't matter how much failure and death you have, nothing will change and no evolution will occur. Neither does natural selection operate by killing. Instead it uses differential reproductive success. In fact, evolution occurs fastest when diversity is high, resources abundant and a population is expanding.

Natural selection operates on all biological systems including human societies. However, it operates on ideas, beliefs and their associated behaviors instead of organisms. Ideas are selected while the humans who hold those ideas continue to live just fine.

It is impossible to have a society in which the natural selection of ideas does not operate. Since natural selection only occurs when there is diversity, you can only stop natural selection of ideas by imposing uniformity of ideas. In other words, natural selection of ideas is caused by freedom. As long as people can choose ideas, they will select them and drive their evolution.

Historically, people who have fought to create a "cooperative" society in which there is not economic natural selection have simply been trying to move competition from the economic realm, where they are at a disadvantage, to the political realm where they have the advantage.

[fresnodan]

There is market failure (or gubermint failure - take your pick of the semantics - what one can't say is that these firms are actors in a free market system): the continuence of GM, AIG, Goldman Sachs, and the numerous other firms that should be bankrupt but were not allowed to because of TARP, TALF, GOBBYTXYZV, and the general affirmative action program for the rich, venal, and stupid.

[Shannon Love]

Old Mexican,

There's no such thing as "market failure," just like there's no "evolution failure" just because there are no unicorns.

I am so stealing that. It nicely encapsulates an insight into both markets and evolutionary theory.

[The Gobbler]

Bullshit.

[d]

Oddly enough the market came up with the answer all by itself in 2008. Had the Fed and Treasury not ponied up trillions almost all the bankers would be digging through dumpsters, and pretty well most of the CEO's would be waiting in line.

Why the CEO's? Because they all played the same games. Imagine if (name large corporation)'s paychecks all bounced because the short term money market paper holding the payroll money till friday collapsed.

But no, we can't let bad things happen to fools. Just think how awful the homeless problem would become with all these hectoring bankers bothering passersby for $35 for a cup a coffee.

Derek

[Old Mexican]

Katherine Mangu-Ward Talk CEO Pay on CNBC[...]

As part of her penance?

[PM770]

Ha. I wonder what she did to piss off Matt. Goof on the Angels losing record?

[Spoonman.]

Because Ray Irani won't send men with guns to put you in a cage if you don't pay for his petroleum, you inane piece of shit.

[West Texas Boy]

Winner.

[Ben in DC]

Markets fail when they do not provide the most efficient allocation of goods and services. This can be due to externalities or non-competitive markets... it's the reason that we do not allow certain monopolists to behave in certain ways. I believe the market for CEO labor is a non-competitive market, and yes, investors could try to find a company with a fairly compensated CEO, but the problem is fairly widespread, and I don't feel like keeping money under my mattress.

[Old Mexican]

Re: Ben C,

Markets fail when they do not provide the most efficient allocation of goods and services.

Sorry, Ben, but you're begging the question. Who says what's the most "efficient" allocation of resources outside of the market? You would need something to compare the results with.

This can be due to externalities or non-competitive markets...

There are no such things as "externalities," which end up being "whatever I happen not to like" 100% of the time. There are no such things as "non-competitive markets," as traders compete with each other ALWAYS (unless you happen to be on a deserted island or something similar, but then you would not have A MARKET.)

[I]t's the reason that we do not allow certain monopolists to behave in certain ways.

In a free market there are no "monopolists" as even companies with a large market share have to compete with upstarts and nimbler small companies. Monopolies are actually CREATURES of the State, so saying "we don't allow them" to do this or that is merely begging the question, as there's no "WE."

I believe the market for CEO labor is a non-competitive market

Which is only that: a belief.

[...] and yes, investors could try to find a company with a fairly compensated CEO, but the problem is fairly widespread, and I don't feel like keeping money under my mattress.

If it's fairly widespread, would you not then conclude that stockholders arrived at this system as a result of their aggregated self-interest?

[Bill]

I often wonder if the reason that the average CEO makes so much more than the lowest paid employee (or is it the average paid employee? This would be a better indicator) and the reason this has apparently gotten worse over the years is NOT in fact due to the huge increase in the involvement of government regulations and tax laws over the last 80 years.

[fresnodan]

I tend to agree. When one looks at the increase in the profitability of the finance sector, one of the, if not THE most regulated entitiy, one can see the shennanagans pulled to support, defend, subsidize...aw hell, just give trillions and trillions to guys who made 3/4 of a million dollar loans to strawberry pickers who made 14 grand a year.

What other group gets to fail so spectacularly and continue??? If NASA was run by the Fed, every f*cking rocket would have blown up at launch, and Bernanke's solution would be to put ever larger amounts of dynamite in the cargo hold.

[Enough About Palin]

I worked for a corporate president who had over 6,000 employees under his direction. That alone tells me he sould have been earning 6,000 times what the lowest paid employee was making. If the lowest paid employee, fucked up, then the lowest paid emplyee would loose their job. But if my boss fucked up, 6,000 employees could have lost theirs. Think that would never happen? Then go ask the folks today at Enron or Lehman Bros.

Add to that his responsibility to shareholders and customers and it becomes pretty clear that as far as CEO pay is concerned, how much is appropriate, is up to the shareholders and no one else.

[adam]

Too bad the shareholders don't set CEO pay. Instead, the board does. And most boards are elected in elections that only have management-sponsored candidates on the ballot.

[cynical]

"Markets fail when they do not provide the most efficient allocation of goods and services."

So, as soon as we find someone who can tell us the most efficient allocation of goods and resources, we can reliably identify market failure as distinct from failure of our expectations. Of course, once we find that guy, we don't really need markets anymore.

[Patriot Mike]

Try competing with them, Ben, if you think they're overpaid. Put them out of business, like the Big (Last) Three put all the other car companies out of business. The Japanese would have put our Last Three out of business too, but Obama wouldn't let the market make it's corrections.

[Slut Bunwalla]

Uh, the Big Three put a lot of car companies out of business through use of government regulation and buying senators. It wasn't purely because they built better cars or had better ideas.

[albo]

Clearly, the federal government needs to get involved. Create an agency and appoint a czar. Hire a boatload of staff. Establish a budget line item. Rent some office space. C'mon, get on it, Congress!!!

[CNBC Host]

Katherine, Katherine, Katherine. Don't you know that all CEOs are white racists who belong to the same white racist club?

Sheesh. Another waste of time.

[P Brooks]

I actually see CEO pay as a market failure.

Don't call it a "market failure". It's regulatory capture.

[Tony]

How so? Because you are compelled to blame government for anything that is wrong in the world?

[fresnodan]

because your compelled to make excuses for any gubermint failure?

[Metazoan]

The problem is, as P Brooks stated, not a market failure, but regulatory capture. The rules of the game have been severely slanted to assist the management of a company and throw its owners under the bus. Highly un-capitalist, highly immoral, if you ask me. Of course, the federal government mandating pay is no better or less immoral, since they aren't the owners either (we can only hope it stays that way).

[Ska]

It's amazing to me that so many people think what CEOs get paid is any of their business. If you're a shareholder, you have got a legitimate beef, and you can vote your shares or sell them. If you're not a shareholder and you find top executives' pay at specific companies so egregious then don't buy products from them. Talent gets compensated whether you respect the talent or not.

Other than that people just have get over their jealousy. Next thing you know you're going to tell me that I'm overpaid, or that you're somehow qualified to determine what anyone's fair compensation is.

[Sidd Finch]

How does one not buy oil from an oil company?

[Enough About Palin]

One starts up an oil company of their own.

[West Texas Boy]

Or walks.

The point being, you don't have to drive your car to work.

[Sidd Finch]

That's not going to work because some small fraction of utility energy comes from oil. Hiltzik is atrocious by even LA Times standars, but picking an oil company was smart. Everybody uses it but you can't choose whose to buy.

[The Gobbler]

That's bullshit. During my salad days, I rode a bike. Never needed to buy gas or oil even once.

[Sidd Finch]

I guess your salad days didn't last long enough to do any maintenance on that bike.

[Ramsey]

Error: Barriers to entry!

[robc]

Misnamed, they arent barriers, they are hindrances. Think like a Mexican wanting to work in the US. Does he treat the Rio Grande as a barrier or as a hindrance?

[adam]

Vote your shares for who? The management sponsored candidate? The rules are rigged.

[P Brooks]

people just have get over their jealousy.

Jealousy, that's it.

Actually, as a shareholder, I don't object to people being highly compensated for success. I *do* object to them being highly compensated for poor performance and outright incompetence, and I object deeply to managers who put their own interests before mine.

[Ben in DC]

Amen. I don't have any problem with Steve Jobs' compensation, and I am sure Apple shareholders don't either. I do have a problem with CEO's who risk their shareholders money secure in the comfort of their golden parachutes. As was noted by Pro Libertate, it is likely the result of a too-close relationship between government and management. Tell me, Old Mexican, do you like government putting its thumb on the scale with subsidies and regulations, picking winners? That's how I see the current system. The government has its thumb on the scale...

[Tony]

I have interacted with few large firms that structure themselves in a way that rewards competence. And we've seen plenty of examples of useless CEOs being handsomely rewarded. But that's what you get with mini-autocracies. Which libertarians are just fine with for some reason, while they're consistently skeptical of democratic government.

[Spoonman.]

Because when that mini-autocracy fails, its members are out of a job, unless the Feds bail them out. The same thing does not happen with government, or haven't you noticed that We Are Out Of Money?

[Isaac Bartram]

That's because no one can force anyone to deal with the "mini-autocracies".

Try not dealing with a government, democratic or otherwise, some time.

[Tony]

Actually most people spend 8 hours a day, at least, in mini-autocracies, and if you have alternatives you are lucky. But since freedom = freedom from government to you guys, that doesn't seem to bother you.

[Pro Libertate]

At least I can quit a job. But I can't quit government.

[Gay Sheep Fucker]

can't make it on a coupla high-altitude fucks once or twice a year! You are too much for me government, you sonofawhoreson bitch! I wish I knew how to quit you.

[heller]

Tony, is anyone forcing you or anyone else to submit to "mini-autocracies." No, you choose to be there. Why don't you just use the real term and call it wage-slavery. Come on, be a good little Marxist and use the contradictory term. Dumbfuck.

[Tony]

There is some question as to the amount of freedom people have in this regard, especially with high unemployment. Surely it's the case that sometimes people are not that free to choose not to work in a bad job. Or are all those children making shoes in Asia just getting a head start on entrepreneurship?

Whatever names you want to call me, at least I allow for the good qualities of capitalism. The problem is you are blind to any of its bad qualities.

[heller]

Surely it's the case that sometimes people are not that free to choose not to work in a bad job. Or are all those children making shoes in Asia just getting a head start on entrepreneurship?

You tell me Tony. Is someone forcing them to work?

Whatever names you want to call me, at least I allow for the good qualities of capitalism. The problem is you are blind to any of its bad qualities.

You're starting to sound like a broken record Tony. I already told you, there are good and bad outcomes depending on who you are and what your point of view is. If it were mostly bad outcomes, I doubt people would participate. Remember Tony, no one is forcing you to participate. You can go out on your own and make your own food and gather your own resources. Sounds fun.

[Jordan]

By this stupid logic, your house is a mini-autocracy too.

[Enough About Palin]

That's a sure bet.

[Enough About Palin]

Tony, you wouldn't understand what a CEO does even if you shadowed one for twenty years.

[heller]

Saying that a certain outcome of the market is a "market failure" is begging the question. A market failure of what? To come out with the outcome that you personally want? I guess when a person's stock goes down, that's a market failure. When prices go up, that's a market failure. As long as someone isn't getting rich, the market is always failing, right Tony?

The fact is that the outcome of the market is solely dependent on those that are participating in it. Meaning that the outcome vis-a-vis an individual is dependent on his input and the pure chance that what he is doing will work with what everyone else is doing. You can try to use the market to your advantage, or you can impede the market with outside forces that bend its rules, but the market doesn't fail because of those things.

[Tony]

The question is whether the market is functioning in the way it's supposed to--that is, the way that supposedly justifies its existence as a major force in human lives. If all it does is create wealth for an elite few and widespread misery for everyone else, then it's not an especially useful tool is it? If it allows people to pollute with impunity, it is failing to account for all of the costs of transactions. If it doesn't safeguard limited resources but uses them all up, it has demonstrated a failure of long-term sustainability. It's just nutty to say that everything that happens in a free market is by definition good.

[Enough About Palin]

"If all it does is create wealth for an elite few and widespread misery for everyone else, then it's not an especially useful tool is it? If it allows people to pollute with impunity"

Let's leave the federal govenment out of this.

[heller]

If all it does is create wealth for an elite few and widespread misery for everyone else, then it's not an especially useful tool is it?

First of all, if you think that this is all the market does, you must be incredibly stupid. Look around you right now and think about what things you wouldn't have if people were prevented from participating in markets. You have indeed benefited greatly from the market system.

Second of all, as I said before, the market is not a tool. It is not something to be turned on and off. The market will form regardless of what you or anyone else thinks should happen. Before everything else, it is merely people acting voluntarily.

If it allows people to pollute with impunity, it is failing to account for all of the costs of transactions.

Whether or not people should pay for polluting is dependent on whether or not they are damaging the property and/or lives of others. It is not dependent on the market. That is something which has to be settled by people, by a court, not by the market.

If it doesn't safeguard limited resources but uses them all up, it has demonstrated a failure of long-term sustainability.

Is it a rule of the market that the market will guard or not guard resources? No. This is up to the people who are participating in the market. Either they can choose to use resources or keep them from being used. The system doesn't force anyone's hand. Nor is it always a bad thing when resources are used. It usually benefits many people when resources are used. It can also benefit people when resources are not used. This is not a market failure.

It's just nutty to say that everything that happens in a free market is by definition good.

Yes, but I never said that. Some people will not like some outcomes. Others will.

[The Bearded Hobbit]

This statement reminds me of the difficulty that religious people have with dealing with atheists. They simply cannot wrap their minds around the concept of someone not believing in anything.Tony's concept of market has religious undertones. The "free market" cannot exist without some guidance from the benevolent hand of government.

... Hobbit

[Shannon Love]

Okay, children, let me explain why executive compensation is so high. Are you ready?

Ahem: If you want someone to run your company for your interest you have to pay them more than they could make running their own company for their own interest!

Admittedly, this a concept as complicated as quantum physics for some people but I will try to boil it down.

If someone has what it takes to run a major corporation, they have what it takes to run their own business. If someone has what it takes to convince a bunch of investors to hire that person to run the investor's business, they have what it takes to convince a bunch of investors to invest in that person's private company.

High executive salaries trace back to investor groups buying private companies and then paying the original owner big bucks to stay around and manage.

The reason that American executives continue to pull down so much dough is that in America you can walk out the door, start your own business and rise to the top of an industry. You can't do that in corporatists systems like those in Europe because the state protect large corporations from internal and external competition. It is much, much more difficult to grow a business into a giant in Europe than in American. That lack of freedom reduces the choices of executives and keeps executive compensation down.

If you want to live in a country where executive pay is low, you have to live in a country like France where the top 30 biggest companies in 1970 are still the top 30 biggest companies today. In America, 20 of the top 30 companies didn't even exist in 1970.

And yes having the right executives matters, it matters big time. People who think otherwise usually operate from a crypto-Marxist assumption that companies churn along on autopilot driven by natural forces and it doesn't matter much who sits at the top. That's abstract nonsense. No one can wreck a company faster than bad executives and often all it takes to turn a company around is a change of management.

A clear cut example of this is Steve Jobs an Apple. Jobs is still the proportionally highest compensated CEO in the world and Apple's stockholders, employees and customers think he is worth every damn penny. I was at Apple back in the 90s and watch two executives drive the company into the ground and one executive staunch the bleeding but it took the unique talents of Jobs to make the company a success again.

Jobs is but the most visible and extreme executive talent out there. We have no better mechanism for choosing executives and establishing pay than the one we have right now.

When the government interferes in the management of publicly traded companies, it almost always has the effect of giving a significant advantage to privately held companies. That is what happened with Saborne-Oxley. If publicly traded companies can't hire the best talent, then privately held companies will.

The effect will be to tremendously concentrate corporate ownership from half of America just a tiny subset of the population.

[adam]

Most CEOs of big companies couldn't walk out and start their own businesses. They rise through the ranks of their companies because they know how to play the political games inside the corporate bureaucracy. Steve Jobs isn't a very good example- he actually is an entrepreneur who started the company. The more typical overpaid CEO is someone like Carly Fiorina- rose up through corporate ranks because she knew how to play corporate politics, made tons of dumb decisions as CEO, but still got paid tons ($20M severance).

[Shannon Love]

And how would you test that idea? Why are you so sure they can't? Even if most can't, how is a board to know who can and who can't? Stockholders and board members don't like to pay any more for executives than they do any other employee. Why do you imagine they suddenly want to waste big chunks of their own money?

Besides a lot of big time entrepreneurs started out as executives in big companies.

[Douglas Fletcher]

Considering that the LA Times has been losing money by the gobs for years now, would it be too much to ask this Times journalist to wonder if the fact that he's being paid at all to be a form of overpayment?

[Pissed Off Clevelander]

Hey Michael Hiltzik great idea.
I want Lebron James frog marched out of Miami in an orange jumpsuit for robbing Cleveland and sponsors of $40 million last year.

[me]

Thing is, and this is important, top executives are very much protected from failure - no matter how poorly they perform or the company performs and even if they do lose their jobs they still walk away with more money than you and I typically make in several lifetimes. It is an old boys club where they all sit on each others boards for millions of dollars a year and similarly protect each others interests. because they are part of the club that none of the rest of us are in.

I don't know if there is any way around this and I don't know if this is a natural product of a free market or not, but I know that we don't actually have a free market economy. We have an economy where the interests of the ruling class is protected by the political class and the vast majority of us are just not even in the game. Now, this works alright for most us as long as there is enough that those in the club can glut themselves and still leave some crumbs for the rest, but the day is soon coming when there will be no crumbs.

Now, the company I worked for before I was compelled to retire had a CEO who made some decisions that cost the company hundreds of millions of dollars, halved the value of shares overnight and generally screwed things up so much that it took several years to recover. He did lose his job and as is typical his golden parachute amount to 11 million dollars in flat out cash and stock options at their depressed values. This strikes me as fairly insane. Now, of course, the argument goes that companies have to do this to attract the best people. Anybody who takes this argument seriously is an idiot.