It's that time of the year when executive compensation comes
under heavy scrutiny as public companies release details on 2012
CEO pay packages and shareholders vote on them at annual meetings.
Some of the best-paid CEOs of 2012 include
) founding CEO Larry Ellison, who received a $96.2 million package;
) Robert Kotick ($64.9 million);
) Les Moonves ($62.2 million); and
) Robert Iger ($40.2 million).
) Mark Zuckerberg, of course, are part of the symbolic $1-a-year
salary club, though the amount they actually receive is far higher,
thanks to options awards and other extras, as Ellison's example
proves. Zuckerberg earned a cool $2.3 billion in 2012 because he
cashed out some 60 million stock options. 2011's leader,
(AAPL) Tim Cook, meanwhile, received a relatively paltry $4.2
million in cash.
With each year's release of CEO pay packages comes the inevitable
discussion of whether or not these executives are overpaid. Citing
growing income inequality and a larger-than-ever gulf between the
earnings of a company's CEO and the average employee, many argue
that CEO pay needs to be cut. For example, Fordham University
assistant professor of sociology, Heather Gautney, argues at
Reining in CEO pay is not about killing incentives or punishing
success, as free market ideologues contend. It's simply a matter of
value. A more equitable arrangement acknowledges the value that
hardworking people bring to our economic institutions and the
social wealth of our country. And it exposes the outrageous
over-valuation of investment bankers and corporate executives -
inventors of financial products and management techniques with
questionable social value.
Understandably, employees slam well-paid CEOs whose companies are
(CAT) head honcho Doug Oberhelman was roundly criticized by union
workers for getting a 32% pay bump to $22.4 million in 2012 despite
his company's lower-than-expected earnings.
"There's no secret to Caterpillar's approach to labor relations,"
said a United Steelworkers director Michael Bolton in a
last week. "The company clearly is willing to hold jobs, families,
and entire communities hostage in its drive to bust unions, depress
workers' incomes, and slash workers' health insurance and other
benefits so that Oberhelman and other top executives can cash in."
But while CEOs are always heavily scrutinized for their
compensation packages, one wonders why the public is not even more
critical of salaries of leaders in other sectors. Consider, for
example, the salaries of top hedge fund managers, who take home
enormous paydays without drawing anywhere near the ire that CEOs
annual ranking of the top-earning hedge fund managers in 2012,
David Tepper of Appaloosa Management was the top of the class,
earning an astounding $2.2 billion in 2012. The next three hedge
fund managers after him -- Raymond Dalio of Bridgewater Associates,
Steve Cohen of SAC Capital, and James Simons of Renaissance
Technologies -- each cleared at least $1 billion. In all, the top
25 hedge fund managers made a total of $14.14 billion in 2012,
which amazingly is the lowest total since 2008. In 2011, the top 25
took home $14.4 billion.
Appaloosa Management's David Tepper earned an astonishing $2.2
billion in 2012.
Hedge fund managers argue that their earnings are justified because
they have a large risk-reward ratio since their fortunes are often
intrinsically linked to their firms.
SAC Capital's Steven Cohen, for example, has a greater than 50%
stake in his firm's estimated $15 billion in assets, meaning the
pressure is on him to get his investments right.
But does that mean hedge fund managers deserve their sky-high
paydays? Martin Hutchinson of
certainly doesn't think so. He writes:
In 2011, the average hedge fund lost money, even before the $14+
billion creamed off by the top 25 managers. In 2012 the average
hedge fund made a weak 6.4% for its investors, according to Hedge
That means it trailed a passive portfolio of 40% bonds and 60%
stocks by almost 5 percentage points. This is one of the big
reasons I have disliked hedge funds for so long. They seem built
more for managers amassing wealth than doing so for their
It was the same story in 2012. The average hedge fund returned
6.4% in profit for its investors in 2012, according to Hedge Fund
Research. In comparison, the
(INDEXSP:.INX) rose 11.68%.
Some have also commented that the work that the hedge fund "masters
of the universe," as they are often called, do pose a systemic risk
to the economy. A 2012 independent
study found that while they did not play a pivotal role in the 2008
financial crisis, "the potential for hedge funds to build highly
leveraged portfolios that turn out to be illiquid in periods of
financial turmoil" could cause the market to freeze up.
So while hedge fund mangers like Tepper and Cohen earn billions,
folks such as
(GS) CEO Lloyd Blankfein and
(JPM) CEO Jamie Dimon have to endure Congressional grillings while
being the public symbols of Wall Street excess - all for the
relatively paltry compensation of $21 million and $18.7 million
respectively in 2012. It's almost enough to make one pity them.
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