Who says CEOs are overpaid?

There has been much ink spilled in the hysteria about the level of executive compensation in Australia and elsewhere.  Some vitriol has been justified in instances of overt incompetence or malfeasance, but arguments for legislative constraints on payment levels seem simply bizarre to me.

There has been a fascinating insight into the perceived value of one Aussie CEO in the past few days.  Music and electronics retailer JB Hi-Fi announced long-served CEO Richard Uechtritz would be stepping down. Despite also announcing increased revenue, profits etc., the company’s market capitalisation dropped approximately $111m in the following hours.

Now, Uechtritz was on a salary of less than $1m a year (plus some pretty tasty share options – the firm has risen from $2 to a high of over $22 in 8 years). Even if half the share price fall could be attributed to some disappointment at the firm not exceeding profit expectations and the overall gloom within the retail sector, it would still put a market valuation of around $50m on his head. 

Surely, he should have been receiving well in excess of his typical remuneration given the markets’ valuation of his impact?

Note: The author (happily) owns shares in said company.

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One Response to “Who says CEOs are overpaid?”

  1. Steve Sammartino Says:

    Interesting argument, though I’d say it doesn’t cover the full gamut of the issue. While I agree that great CEO’s earn all of their money and can add incredible value, the key issue is not the impact they have on company performance, rather if we could find an equally good substitute for a much lower price. What they earn doesn’t reflect what the job copsts, rather, what they can get away with.

    I say this, and I’ve always said it: You show me a CEO or senior executive on multi million dollar package and I’ll personally deliver to you a better option for around $250K per annum. There are plenty of as or more capable business people available, but they don’t have the connections, contacts and breeding which get the jobs. Niccolo Machiavelli was right all those years ago.

    Shouldn’t value be equated to cost relative to available substitutes rather than arbitrary value created? Surely the answer is yes. And in case you are wondering I have two executives in mind who’d do such a job tomorrow.

    That said, no I don’t think executive salaries or any level of earning potential should be capped. But if a government bails out a company, the government should own it until they re-float it.

    Steve.

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