Is Apple CEO Steve Jobs overcompensated? A new
Fortune article says yes. In fact, executive compensation has become “highway robbery” due to the “perverse interaction of CEOs, boards, consultants, even the feds,” the article says.
The article says Jobs’ US$872 million options grant is the largest ever. Fortune also mentions the impressive pay packages of others company execs, including Larry Ellison of Oracle ($92 million), Sandy Weill of Citigroup ($151 million), and Jack Welch of GE ($125 million).
The article blames the “madness” on the Revenue Act of 1950. How so? “Buried deep within that bill was a section amending the tax code,” says Fortune. “And that change, scarcely remarked upon at the time, made it legal and practical for companies to pay employees with an interesting form of currency called the stock option.” Through the ’50s, the ’60s, and part of the ’70s, CEO pay actually grew more slowly than the pay of average workers. But the stock option has “mushroomed from modest use in the 1950s to a source of breathtaking CEO wealth today,” Fortune says.
One reason for its popularity is the brain-numbingly complex way companies treat options in financial statements — a way that’s great for executives and awful for shareholders, says Fortune. The financial maneuvering is too difficult to explain here. But another Fortune article
can do it for you.
CEO pay is also “out of control” because many boards aren’t doing their job, Fortune says. Adding to the convolution, a CEO’s “pay machine” is very intricate and built up over decades, Fortune says.
“Besides options, other important pieces have come from compensation consultants, economic developments, social trends, even government; indeed, the government’s occasional attempts to restrain CEO pay have almost always had the opposite effect,” the article says. “What’s so remarkable about the machine is that through all the ups and downs of business, the waxing and waning of corporate fortunes, it turns in only one direction — and faster all the time.”
But don’t expect the cycle to reverse itself anytime soon. Fortune says that today’s CEOs have become “celebrities” and that “the American public isn’t angered by big pay.” However,
many investors think executive pay
is “unfair, bears little relationship to performance, and is totally out of control.”
When it comes to Apple, however, many folks would argue that Steve Jobs is worth every penny. He did help start the company and is generally perceived as “saving” Apple four years ago. As for CEOs being celebrities, in Jobs’ case, it’s certainly true. Anyone who’s waited in line to get into a Jobs keynote can vouch for that. The lines are longer than those to buy tickets for many big name music events.