Executive compensation today is offensive and unnecessary

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I first became a corporate director in 1968 serving on the board of a small company in California. Since that time, I’ve served on 15 other company boards and I continue to serve on one board today. I feel rewarded by those experiences and also appalled at the compensation involved in corporate governance today. I very much appreciate the efforts of the Star Tribune business staff (”Minnesota’s Top Paid Executives”) to track how our business leaders are compensated. CEOs are not all self-serving egocentric people. Some of them are very fine people trying to do their jobs in conscientious ways.

But the fact of the matter is executive compensation today is too high. Much of it is both offensive and unnecessary. Take Boeing as an example. Boeing’s outgoing CEO earned $32.8 million in 2023 and $22.6 million in 2022. Boeing has lost money for several years, has lost it’s one-time impeccable reputation for high quality, and has a tangible net worth of a negative $27 billion. The case could be made that instead of compensation, the past several Boeing CEOs merit reasonable clawbacks because they have greatly worsened the situation of one of the most important industrial companies in the United States.

There are some excellent CEOs, of course, and there are also many responsible and conscientious corporate directors. In 1994, I served on the board of directors of a company listed on the New York Stock Exchange. That year, I was chairman of the compensation committee and one of the executives had earned a bonus of $80,000 for the improvements he had made in manufacturing. When he was told of this award, he was appreciative but also reflective. He came back later and said, “Fred, I don’t really need $80,000. I’ve lived in the same house for more than 30 years. Our children are all doing well and are on their own with good jobs. But what I would like to see happen is for us to have some kind of a corporate sharing program where the employees of the company receive some additional compensation when the company does well.”

That individual later became the successful CEO of that company and such a program was put in place.

Over the years, I’ve had the great privilege of knowing and working with some very dedicated, honest and conscientious business leaders. Some are exemplary. I have also known about and occasionally witnessed some outright scoundrels, some egocentric nitwits, and some rather bumbling individuals who were ill-prepared for the responsibilities they had. The problem is that they were all well paid.

Perhaps all of us should consider what we are taking from the system. Perhaps many of our compensation systems are in need of critique. I’m not in favor of class-oriented mandated government initiatives that may turn out to be ill-designed and replete with unfortunate consequences. But I am in favor of the corporate directors of our nation’s companies reconsidering their responsibilities with far more attention to what attributes are needed to keep these important companies in business.

One of the problems of excessive executive compensation is that it spreads. Pretty soon, lots of people begin to think they are entitled to some fraction of what top executives receive, so overall costs rise to the point where the competitive position of the companies are affected. Boeing is a good example.

One of the arguments for high levels of compensation is to attract talent. There is nothing wrong with that general intent, but are we always getting better talent for what we pay? Baloney. Sometimes we are and sometimes we are not. Elon Musk is probably not worth $44.9 billion either.

I have found the best business executives are not all that interested in compensation for three reasons. They are consumed with a sense of purpose, they see how everything fits together, and they do not need the money.

Fred Zimmerman is a professor emeritus of engineering and management at the University of St. Thomas. He lives in Minnetonka and can be reached at zimco55345@gmail.com.