CONNECTING THE DOTS TO CEO PAY

Why do corporate CEOs keep getting such astronomically-high pay packages?

Why do corporate CEOs keep getting such astronomically-high pay packages?

The official answer is that they’re merely paid the going market rate for managerial superstars. But wait – they get tens of millions of dollars a year even when their corporations do poorly. The real answer is that CEO pay is the product of a corrupt system of cronyism within corporate boards of directors. These boards, which are supposedly watch dogs over top executives, usually consist of a closed circle of fellow corporate officials and close friends of the CEO. In other words, it’s a brother-in-law deal.

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Look at Home Depot, which has dumped $245 million in pay on CEO Bob Nardelli over the past five years – even though the company’s stock value has fallen by 12 percent on Bob’s watch. What’s the deal here? Let’s connect the dots.

Nardelli came to Home Depot from General Electric, recruited by Home Depot’s lead board member, Kenneth Langone. Langone, himself a CEO of another company, happens to sit on the board of GE, where he became close to Nardelli. Langone also brought another friend, Bonnie Hill, to Home Depot to serve as a board member and to chair the committee that oversees Nardelli’s pay. Hill, who runs a corporate consulting firm, has been a member of GE’s board. She also is on the compensation committee of Albertson’s supermarket chain, where she helps set the pay of its CEO, Larry Johnson.

Let’s check out Larry. Before joining Albertson’s, he worked at GE with Nardelli. He, too, has been added to Home Depot’s board and also sits on the committee that sets Nardelli’s pay. And here’s a cute connection – CEO Johnson and CEO Nardelli both use the same lawyer to negotiate their pay packages. So, when Johnson negotiates to set Nardelli’s pay at Home Depot, he’s negotiating with his own lawyer!

This is Jim Hightower saying… And that’s why CEOs get such astronomical pay.

Sources:
“At Home Depot, the Stock Fell But the Chief’s Pay Kept Rising,” The New York Times, May 24, 2006.

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