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The Big Question

Q: Was There Ever a Worse Time to Be a CEO?

Mark Blyth, assistant professor of political science and author of Great Transformations: The Rise and Decline of Embedded Liberalism (Cambridge University Press, 2002) Photo by Jefferson J. Steele

A: "One would think that with the falling stock market, mushrooming accounting scandals, and the general media outcry against corporate malfeasance, now is not a great time to be a CEO. Wrong. Unlike post-Civil War 'carpetbaggers,' leaders of turn-of-the-century 'trusts,' or even the 'economic royalists' so publicly called to account by Roosevelt during the Depression, today's CEOs have little to fear in the form of public persecution. There has in fact never been a better time to be a CEO than today, for three reasons: You will most likely never go to jail for anything your company does, the job is incredibly secure regardless of performance, and the pay bears little relation to actual productivity.

"First of all, despite what seems to be an ever- increasing slate of companies either admitting to or settling billion dollar fraud charges, not one CEO has gone to jail thus far, and in the current legal climate, none are likely to either. A large part of the problem here is how CEO compensation through stock options promotes corrupt behavior. Option payments make it in the interest of the holder to push up the stock price in order to exercise the option and pocket the difference. When this cannot be done with profits, one can do it by hiding expenses (WorldCom, Xerox) or overstating revenues (Enron). While one might think this damning, the incentive structure of such payments actually creates a security blanket for CEOs accused of malfeasance. After all, since an options compensation package is explicitly designed to encourage the CEO to push up the share price, one can hardly be blamed for responding to market incentives and cooking the books.

"Second, being a CEO has never been a better- rewarded or more secure job, given that salary size, corporate performance, and compensation have been thoroughly delinked. In 1980, the average CEO made 42 times the average hourly worker's pay, by 1990 the ratio was 1:85, and by 2000 the average CEO made 531 times the average worker. In 2001, median CEO pay grew by 7 percent, despite a 35 percent decline in corporate profits and the beginnings of a general collapse in stock prices.

"Third, when all is said and done, if these scandals continue, if faith in the integrity of American capitalism evaporates, and if the markets crash and millions lose their savings, with the average CEO of a large firm earning $15.5 million per year while the median income for a family of four is $56,061 per year, one can see why despite all the bad press, there never has been a better time to be a CEO -- and that's perhaps why we are facing the problems that we are."

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