The fever pitch of media frenzy concerning CEO compensation have brought a couple of new thoughts to my mind in the past day.
First, the entire topic has taken on a kind of Randian quality now. Witness yesterday's, and today's, prominent pieces in the Wall Street Journal focusing on Dr. William McGuire, CEO of the very successful UnitedHealth Group. Dr. McGuire is one of the few large-cap CEOs to have actually earned his considerable compensation, by consistently creating superior shareholder returns during his tenure. However, by yesterday afternoon, he was already giving an interview on CNBC, pointing out that he had recommended to his board that he and other senior executives have now earned 'enough,' and need no more options grants.
Does this not remind you of "Atlas Shrugged," wherein the masses enjoy the fruits of an inventive few, but demand to control how those value-creators are compensated? The WSJ article pinpointed the concern that, while many pay rising health care costs, the publicly-held UNG has chosen to pay, from its shareholders' pockets, very large amounts of compensation to Dr. McGuire for creating stunningly large amounts of shareholder value.
The nerve!!!!! That private individuals, in their role as common shareholders, should decide how to spend their own money! Can you imagine? Why, it smacks of....of..... capitalism!
It has crossed my mind frequently in the past few days that the obvious solution for this is going to be a marriage of successful companies and private equity. What if the masses, through political and regulatory intimidation, excessively constrain compensation for those who successfully perform the very difficult task of consistently earning superior total returns for large company shareholders? Would this not be an ideal situation for private equity owners to take such a firm out of public hands, compensate the CEO appropriately, and enjoy the subsequent shareholder returns split among fewer owners? Out of the public spotlight?
Ironically, the net result, taken to the extreme, could be fewer well-run firms left among public companies, thus denying "the masses" the opportunity to profit, as small shareholders in well-run large-cap firms. I do not think that is a healthy development for American capital markets, nor its economy in general. It strike me instead as a short-sighted, bone-headed move to encumber otherwise-competitive US corporations.
Why didn't the WSJ, in conjunction with some compensation 'experts,' instead spotlight the most over-compensated CEOs in the US, relative to the shareholder wealth they have created for the past 5-10 years? That is the real problem. Boards of underperforming companies which continue to pay their CEOs as if they are creating value, when they are not. But except for Alan Murray, in his column in today's WSJ, and in his appearance on CNBC, nobody else seems to really be focusing on this part of the problem.
Sadly, I'm afraid that Ayn Rand would be smiling at all this and nodding her head in understanding.
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