CEO Compensation: Limit It or Grow It?

The subject of CEO compensation often evokes anger or sympathy – seldom apathy. As was expected, media outlets nationwide carried the CEO compensation figures for 2010, which was released by the Associated Press from data gathered by Equilar, an executive compensation research firm.

The study, published earlier this month, found that CEO compensation at 334 companies in the S&P 500 index was typically 24 percent higher than the previous year. The figure included salaries, bonuses, stock options and perks.

Per AP’s analysis, the increase was attributed to stellar growth in stock price and profits. The basket of companies posted a 41 percent growth in bottom line over the prior year.

In Connecticut, John F. Lundgren, president and CEO of Stanley Black & Decker, received $32.5 million in 2010, up by 253 percent from 2009. The company’s revenue in the first quarter of the current fiscal year rose by nine percent to $2.4 billion, compared to the same period last year.

Jeffrey R. Immelt, chairman and CEO of General Electric Co., earned $15.2 million in 2010, while Louis Chenevert, chairman and CEO of United Technologies Corp., earned $19.4 million.

Reactions to numbers like these are varied.

Michael Wrubel, a resident of Manchester who works as a manager at a retail store, said there are two sides of the coin with regard to CEO compensation.

“The important factor is the kind of impact the individual has on the return on investment of the company. Some CEOs are deserving of the money they make. Others are over-compensated at the expense of employees who are the pillar and backbone of the company,” he said.

Jared Carillo, owner of Charles S. Carillo Insurance Agency, Inc. in Windsor Locks, and president of the Windsor Locks Chamber of Commerce, said he sympathizes with CEOs in general.

“If the business unravels and people lose their jobs, at whom does the finger get pointed? People just look at a CEO’s pay and think it’s too much. But when you see it as a percentage of the company’s total income, it’s not much at all. People who criticize have no concept of scale,” he said.

Carillo, who employs 15 people, said there’s a tremendous amount of personal sacrifice when you’re the top boss.

“My employees come in at 8:30 in the morning and leave at 5:00 pm. When they’re not here, they’re not here,” he explained. “Whereas I’m constantly checking e-mails from home, talking to people, and focused on work even on weekends. Just think how much more CEOs of publicly-traded companies give up – less time for themselves, and less time with family and friends.”

Carillo said it all comes down to being fair.

“For example, I would never show up to work and say I can’t give a bonus that year because we’re cash-strapped and then go buy myself a $100,000 car. But if I’ve contributed to my company’s revenue growth and given salary increases to my employees and there’s still money left, why can’t I go and buy that car?” he asked.

Catherine Conant, a storyteller who works with primarily non-profit organizations but also for-profit companies in north central Connecticut, said the larger issue is not how much the CEO earns, but how employees feel about it.

“Executives must be mindful of their company’s culture, which can be encapsulated in the form of stories. And stories are immensely powerful. If your employees don’t believe what the management is saying, you have a big problem,” Conant said. “For instance, if executives are laying off people saying it’s been a difficult year and the newspapers carry stories to that effect, I guarantee it will be demoralizing to employees if the CEO has a staggering salary.”

In the long run, Conant said an employee who hasn’t got a hard-earned raise will simply show up, get through the day, and won’t do an extra thing.

“You are going to lose efficiency and eventually the employee will leave the company with valuable knowledge and experience,” she cautioned.

Yet, it’s not always about money.

“People will stay at a company at a reduced salary if they are respected. The problem is when boards bring in hired guns whose only goal is to cut costs. That’s false economy,” she said. “Instead CEOs should create a culture where employees are valued. That’s when employees will say that their CEO has truly earned all that compensation.”