BIG COMPANY SHOULD NOT EQUAL BIG SALARY
Regarding your article "Just how ex cessive are the pay scales of U.S. CEOs?" (Economic Trends, Jan. 27), Ira Kay, a compensation consultant, defends high U.S. CEO salaries by saying: "CEO pay, unlike the pay for lower-level employees, is largely pegged to the size of the organization. The larger the organization, the bigger and more complex the job." While these statements are true, they do not support higher pay for U.S. CEOs. In fact, they reveal the problem: U.S. executives are generally paid to increase the size of their companies, not to improve productivity or to increase shareholder value. But in many cases, making a company smaller and less complex will generate productivity and value improvements. For example, in terms of stock performance, the U.S. electric utilities that grew the least in recent decades outperformed their growth-oriented counterparts (Financial Analysts Journal, April-May, 1990). Executives who attempted to limit the size of their companies by promoting energy efficiency deserved the highest salaries.
Unfortunately, the high salaries continue to go to the largest companies. CEO pay based on corporate size is merely a reflection of American culture's assumption that bigger is better. In the modern world economy, such a philosophy is likely to cause a corporation and its shareholders to suffer.
Steven G. Kihm
Senior Financial Economist
MSB Energy Associates Inc.