Monday, February 8, 2010

Proposing a New Pay Scale for CEOs

Goldman Sachs CEO Paid $9 Million Bonus
Considering the skyrocketing pay on Wall Street, here is an idea for a new pay scale for Chief Executive Officers, especially CEOs of banks.

Take the average full-time hourly worker's annual salary, S, multiplied by one hundred, and factoring in the national unemployment rate, U:

CEO = 100 x S x (100% - U)

For example, if the average pay, S, is $50,000, and the unemployment rate is high, say 10%, then the CEO is paid $5,000,000 x 90% or $4,500,000. That's including all compensation, from cash, to stock options, to benefits.

When the economy improves and unemployment falls to 5% nationally, the pay is naturally increased to $4,750,000. To further differentiate the performance of good CEOs from the bad ones, this number can be further modified according to performance as judged by the Directors.

The Board of Directors of the CEO's company can decide to increase or decrease according to performance by up to, say 20%. So for a job well done, the CEO pay can be as much as $5,400,000. Or conversely, it can be reduced to $3,600,000.

For truly brilliant or incompetent CEOs, the deviation can be modified to say 30% or even %50. But these would be extreme circumstances that must be approved by shareholders in the annual meeting.

When there is no guideline for executive pay, it is only natural that self-confident executives, with masterful people-skills, would manipulate into positions of paying themselves excessive compensation. It is also only natural for the public to safeguard its own self-interest, and demand regulatory mechanisms to keep these excesses in check.

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