CEOs, Super Bowl stars play by different rules on payday
President Obama this week chided some super-rich CEOs for tossing big bonuses to employees, calling it “shameful.” On Sunday, he’ll cheer on a bunch of super-rich athletes tossing around a football.
Is there really any difference between the two? Aren’t executives and superstars both overpaid?
Not quite. And therein lies some hope for reform.
No bailouts in football
Forget the obvious differences. Neither the Arizona Cardinals nor the Pittsburgh Steelers were responsible for the worst financial season since the Great Depression. They didn’t take federal bailouts. They didn’t shower bonuses on themselves and their colleagues to the tune of, oh, $18.4 billion the way that Wall Street chieftains did last year, according to the New York’s state comptroller.
Here’s what's really key: Star athletes are rewarded by the marketplace; CEOs are rewarded by their peers.
"CEO pay is set by boards of directors that are heavily influenced by the CEOs themselves,” Mr. Dew-Becker writes in an e-mail. "There is room for disagreement over exactly how much influence CEOs have over boards, but it is undoubtedly the case that CEOs have vastly more input on their pay packages than other superstars."
Winning is the only thing
Superstar athletes are paid big bucks because, ultimately, they win. People flock to see the No. 1 tennis star or the championship baseball team. Star salaries in the National Football League don't get quite so high because, among other things, their teams' overall salaries are capped.
So if superstars start losing, their contracts come under increasing scrutiny. With CEOs, it's not so clear.
Coming off a record year but six months from bankruptcy, Lehman Brothers gave its CEO a $22 million bonus in March. That bonus alone was worth nearly as much as the $27.7 million that quarterback Ben Roethlisberger -- the highest paid player in the Super Bowl -- earned all year for leading the Steelers to the championship game.
(In fairness, the CEO later said he was giving his bonus back.)
"There is nothing wrong with CEOs earning large salaries," Dew-Becker writes. "The concern is that those salaries may be more than what is in the best interests of the shareholders. NFL owners, on the other hand, directly control the salaries of their players, and can cut an overpaid player at any time, without having to give him a golden parachute."
Vote on CEOs' pay?
Earlier this month, the 500-member Social Investment Forum wrote Mr. Obama’s transition team with several suggestions for improving shareholder rights, including a call for allowing a nonbinding shareholder vote every year on corporations’ executive compensation.
Last year, shareholder activists introduced more than 100 such “say on pay” resolutions, which earned an average 43 percent support – very high for measures not supported by management.
A nonbinding vote on executive pay? Maybe it's a first step toward curbing excessive pay.