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Is executive compensation out of control?

Equilar’s report on CEO pay indicates growing focus on stock options as executive compensation

Apparently, now is a good time to be the chief executive officer of a natural gas firm. If you are looking for the highest levels of executive compensation, that is. 

A recent report from executive compensation data firm Equilar found that the CEO of Cheniere Energy, a distributor of natural gas, raked in $142 million in 2013. If that seems like a lot, well, you can take solace in knowing that he was the only executive in the report that cracked nine figures.

Still, the average compensation figure for the 200 highest-paid chief executives in the United States was $20 million. The eternal question when it comes to executive compensation is whether these individuals earned their salaries – and, increasingly, their stock options, which have become a larger percentage of these compensation packages.

  

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With options, as stock prices go up, so does pay for executives, which, some analysts say, makes sense, as it rewards executives for the success of the company. This decouples executive pay from profit or revenue, making shareholder value the determining factor. This, of course, makes those shareholders happy.

Some economists, however, feel that the spike in executive compensation is bad for the economy. University of Massachusetts economist William Lazonick says that focusing solely on making shareholders happy is shortsighted. It ignores other parties with a vested interest in company success, such as workers, taxpayers, the local community and others, and worries that this pay structure will discourage innovation. 

The results of the survey also showed disparities between payment of women. There are only a handful of female CEOs in top U.S. companies and only 5.5 percent of the 200 highest paid executives in the study were female. Those woment were paid about 10 percent less than the average salary of male CEOs.

 

Managing Editor

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Rich Steeves

Richard P. Steeves is Managing Editor of InsideCounsel magazine, where he covers the intellectual property and compliance arenas. Rich earned a B.A. in English Literature...

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