CEO salaries are supposedly out of control. So what?

A blog entry on the Reuters page today makes interesting reading. "Supersize" CEO salaries have caught the attention of legislators, in California at least, with proposals to apply a punitive tax regime. It seems some people have had enough, or is this a case of a legislature seeing a revenue gathering opportunity?

CEO salaries have been steadily climbing ahead of inflation and most other economic measures for years, particularly so in the US in the last decade. Market forces seem to have been at work, whereby reputations are on the line, and boards have offered increasingly large deals, to attract new CEOs and to retain good ones. No doubt some high-performing CEOs have seen this and demanded big numbers as well. For example, Mark Adamson, CEO of Fletcher Building, seems to be demanding more. Not all CEOs have the same outlook however. In the same article, Mark Powell, CEO of The Warehouse, a very successful retailer in New Zealand, seems to be somewhat embarrassed by his salary package.

The topic of supersize salaries is an easy target for journalists, mates having a drink, the unions, and others. However, when all is said and done, does it actually matter? If a company is socially responsible and the CEO is creating considerable shareholder value, then probably not. However, if the company is flagrantly abusing its staff, suppliers or customers, then it probably does matter. My preference is to let the invisible hand of market forces determine the outcome. If a gross imbalance or inequity occurs, a correction will follow, sooner or later. Hopefully it won't be so late that the society collapses though.