”The system of compensation almost surely contributed in an important way to the crisis”
This quotation by Joseph E. Stiglitz, one of the most famous living economists, shows one general attitude towards executive pay all over the world.
Generally speaking the public opinion is that the payment system of executives in big companies, especially in banks, strongly contributed to the worldwide financial and economic crisis. But do they just get too much money or is the idea of paying executives with shares of the company they are working in just a “rotten apple” like many financial experts already warned before.
The average citizen just complains about the dizzy height of executive pay today. Why do they get so much money and do they really deserve it?
These are questions we can discuss for hours and many experts already did it for us. For this reason I would like to try another approach to that very serious topic.
What about soccer players? They also earn millions of dollars a year and nowadays nobody talks about that. I don’t want to affirm that the payment system of soccer players contributed to the financial crisis, even though this is an interesting point of view, I just want to discuss one question: “Who deserves more money, an executive of a big company or a professional soccer player?”
Why are athletes’ salaries so high?
While I was searching for some answers on the web I found an astonishing article about athletes’ salaries. This article, published by GENE CALLAHAN is titled “Athletes' Salaries Too High? Sports Fans, Blame Yourselves“ and describes one very interesting contradiction.
On the one hand there are the people who pillory the high earnings of sportsmen nowadays. On the other hand these people are very often the sports fans paying hundreds of dollars for tickets or merchandise articles of their favorite athletes. It is indeed a quite strange way to look at this topic since Mr. CALLAHAN blames the fans for paying too much to the sports clubs by buying millions of football shirts and tickets. But if you think about this issue you will certainly realize that there is lots of truth in it.
Finally the author claims that fans also spend a fortune on sport channels and justify with these enormous expenditures the high salaries of sportsmen.
Do executives deserve such high salaries?
In order to come back to the executive payment system let’s have a closer look at the extremely interesting blog of Prof. Hans-Erich Mueller named “Executive Pay & Managervergütung”.
Prof. Mueller is looking at the topic of executive pay in a different way.
This blog is like “the land of milk and honey” for somebody like me who is searching for opinions and answers about the executive pay topic. The author quotes very interesting opinions and issues he found in newspapers or on the web and then describes in a very concise way what he is thinking about this topic. Sometimes he raises further exciting questions in order to start a conversation with his audience.
This blog certainly is very informative and I felt very cozy reading it.
“There is a debate about the tremendous rise in top executive pay. For some people it is only injustice, for others it is also a reason for corporate scandals and financial crisis.”
is one of the phrases I would like to mention here. This sentence does not answer my question if executive deserve these high salaries but it shows that I’m not the only person talking about that issue.
I can surely recommend reading the blog of Prof. Mueller.
Who determines these high salaries?
Since I’ve always been interested in Strategic Management I was trying to find a relationship between Strategic Management payment systems in order to know who determines the high salaries of executives.
Fortunately I found one of the greatest blogs I’ve ever read on the internet. This blog created by Freek Vermeulen - an Associate Professor of Strategic & International Management at the London Business School – discusses several issues of Strategic Management.
The blog entry I was searching for is named “Too hot to handle: Explaining excessive top management remuneration”.
Mr. Vermeulen points out in a very impressive way that parameters like the performance of a company do not determine the salaries of the top management.
“That research has tried, has tried hard and harder, but just could not deliver much evidence that CEO remuneration is determined by firm performance.”
The author reveals that the board of directors – actually nominated by the CEO of the company – determines the management remuneration system. There is no doubt that the CEO will think very accurately about which person he will nominate for the board of directors.
“…bring in the rich guys; they’ll make you rich too!”
The question that immediately came to my mind is: Who is going to determine the salary of sportsmen? Are the sports fans in charge of that? Do managers determine these salaries? Or is it just the market price of a soccer player which determines his salary? What do you think?
posted by Euphorion