S&P 500 CEOs' pay rising faster than shares

Posted Dec 18th 2007 5:28PM by Peter Cohan
Filed under: Management

A survey by Corporate Library indicates that pay for CEOs running S&P 500 companies grew 23% in the last year to a median level of $8.8 million. That's 1.64 times faster than the 14% increase in the S&P 500 average from October 6, 2006 to October 25, 2007.

Should you care? If you're a shareholder of a company whose CEO pay is growing faster than its shareholder value, you have two choices: sell the stock or try to organize your fellow shareholders and lobby the board for a CEO who will increase shareholder value faster.

There's no way you'll realistically be able to get the company to limit increases in its CEO pay to a level below the growth in shareholder value. Instead I think it would make sense to look at the ratio between CEO pay and increases in shareholder value.

The companies whose CEO pay is a small proportion of the shareholder value the CEOs create are the ones you should consider investing in. The ones whose CEO pay gobbles up the meager shareholder value they create are good candidates to dump.

Don't get mad, get rich.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

Tags: CEO compensation, CeoCompensation, management, officer pay, OfficerPay