What Were They Thinking?

C H A P T E R 27

What to Do—and Not Do—About Executive Pay

NEARLY EVERY DAY, some commentator or another is weighing in on the issue of executive pay. There seem to be two complaints. First, executive pay, and particularly chief executive pay, is increasingly excessive. Think about it: in 2005, the average pay of CEOs of large companies was $10.5 million. Furthermore, CEO pay is an ever larger multiple of the pay of front-line employees; by one estimate, CEO pay was 36 times what an average worker earned in 1976, 131 times in 1993, and had ballooned to 369 times as much by 2005.¹ This ratio is much higher than that in other industrialized countries such as Japan, Spain, France, or even the United Kingdom. Moreover, the ratio of chief executive ...