Beyond Economics

The End of Growth and Time for a New Era

Compensation Gone Wild

If we don’t pay them enough, they will leave and then who will run our company and the world economy into the ground?
Take Citigroup. Why would you go to all the effort of running a company for $38.2 million while mere traders at your company are guaranteed as much as $100 million? Poor Vikram Pandit. (Note: Pandit was brought in after much of the damage was done.)
Top 15 Highest Paid CEOs of 2008 (slide show)
Notice how the compensation is structured. Since salary income above about 300K is taxed at 35%, the bulk of the compensation is in stock and options (basically a guaranteed, i.e. risk free stock price) that are taxed at the capital gains rate of 15%. These CEOs have a much lower effective tax rate than their secretaries. As for the traders, they sometimes get their commissions up front as soon as the deal is done, years before the value of the deal is determined. Wonder what kind of risky behavior that incentive system leads to.


One response to “Compensation Gone Wild

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