Contemporary Authors

• The CEO Pay Machine: How It Trashes America and How to Stop It Blue Rider Press (New York, NY), 2017

1. The CEO pay machine : how it trashes America and how to stop it LCCN 2016052097 Type of material Book Personal name Clifford, Steven, author. Main title The CEO pay machine : how it trashes America and how to stop it / Steven Clifford. Published/Produced New York : Blue Rider Press, [2017] Description 277 pages ; 22 cm ISBN 9780735212398 (hardback) CALL NUMBER HD4965.5.U6 C55 2017 Copy 1 Request in Jefferson or Adams Building Reading Rooms

• 800-CEO-READ - https://inthebooks.800ceoread.com/thinker-in-residence/articles/qa-with-steven-clifford-author-of-the-ceo-pay-machine

  May 25, 2017

  INTERVIEWS: Q&A with Steven Clifford, Author of The CEO Pay Machine
  By: Dylan Schleicher @ 8:47 AM – Filed under: Big Ideas & New Perspectives, Current Events & Public Affairs, Innovation & Creativity, Leadership & Strategy, Management & Workplace Culture, Personal Development & Human Behavior

  When I received a copy of Steven Clifford's new book, The CEO Pay Machine, just a week or two before its release, I dropped everything else for a few days and rearranged my editorial calendar to make sure we covered it. (My editor's choice review was our first crack at it.) It's an extremely important book, one that very soberly addresses an issue he believes is hurting companies, ailing the U.S. economy, and could ultimately undermine our very democracy. The issue is skyrocketing CEO pay, and Clifford reminds businesspeople—acerbically and bluntly—of their own agency, even complicity, in it. More importantly, it begins a more rational discussion of steps businesspeople can take to reverse it—for the good of their own businesses and the country.

  (A side note of interest today: Executive data firm Equilar and the AP released the results of their CEO pay study yesterday, and the tide continues to come in for CEOs, as "CEO pay climbed faster last year, up 8.5 percent." Executives in media took all the tops spots, including David Zaslav of Discovery Communications, one of the CEOS Mr. Clifford profiles in the book. On a positive note, it looks like "Say on Pay" provisions of Dodd-Frank may finally be having some effect on arresting the alarming increase in CEO compensation. Of course, the author of the article notes, "proposed legislation in Washington … could weaken 'Say on Pay.'")

  Mr. Clifford was kind enough to respond to some questions I sent him earlier this month, and that exchange is below.

  ◊◊◊◊◊

  800-CEO-READ: The most common discussions we hear on the rise in CEO pay are about income inequality. And you address that, telling us that CEOs now make 300 to 700 times that of the average worker—a staggering increase from the 26 times it was at in 1978. But, beyond the question of basic fairness and income inequality, you make the case that it damages the companies that pay such exorbitant salaries, and the overall economy, as well. Can you explain why?

  The tens of millions that a company wastes on CEO pay is a small fraction of the total cost. The effects on employee morale are much more costly. When the boss makes 300 to 700 times what you do, it is difficult to swallow that "employees are our most important asset" and' "There is no I in team." More costly is the short-term focus encouraged by the Pay Machine. This was a major cause of the 2008 banking crisis that cost companies trillions of dollars.

  800-CEO-READ: Can you explain what PUPNUP is?

  Steven Clifford: It is an acronym I coined, standing for Peers Used for Pay, Never Used for Performance. A CEO's target compensation is set by what his peers, CEOs of comparable companies are paid. The typical CEO works in Lake Woebegone and is targeted at the 75th percentile of the peer group. He can make two or three times this target if he surpasses his performance goals. But these goals never reference his peers. He never has to beat them, only meet some goal he negotiated with the compensation committee. (Forgive the use of the male pronoun, but 95 Percent of Fortune 500 CEOs are men.)

  800-CEO-READ: You write that “CEO pay is as market-driven as were the salaries of Soviet commissars.” I think the idea that CEO pay is divorced from a free-market for their services would seem surprising to most. Most people seem more outraged (or at least similarly outraged) at the salaries of famous athletes as those that CEOs receive, but athletes clearly earn it. Wherever Lebron James goes, Finals appearances follow. Is that a fair comparison? Don’t you get what you pay for? If you don’t pay them what they want, couldn’t a CEO just proverbially, “take his services to South Beach,” a direct competitor, and “win a few championships” there?

  Steven Clifford: Supply and demand determines compensation for athletes and movie stars, but not for CEOs. Teams and movie studios bid for athletes and movie stars in an auction market. Companies rarely bid for CEOs. Their compensation is determined by a rigged system.

  NBA teams bid for LeBron James because his skills are portable. He would be a superstar on any team. CEO skills, which tend to be company and industry specific, are seldom portable. A successful CEO must fully understand a single company—its finances, products, personnel, culture, competitors, etc. Such knowledge and skills are best gained working within the company and not worth much at another company. Therefore, companies seldom bid against each other for CEOs. Internal promotions account for three quarters of large company CEOs (Fortune or S&P 500). Less than 2% of new CEOs were CEOs of another public company. A CEO jumping between large companies happens less than once a year. And when they jump they usually fail.

  As far as getting what you pay for, most studies show that CEO pay and performance are uncorrelated or negatively correlated, meaning the more you pay the less you get.

  800-CEO-READ: That’s a kind of apples-to-apples in comparison to earnings. But you also write that, “In 2014, the top twenty-five hedge fund managers made an average of $464 million. In total, these twenty-five made more money than the nation’s 158,000 kindergarten teachers.” But surely those hedge funds have added exponentially more to the growth of the economy and created many jobs with their investments, as well. Or is this simply another case of the American economy rewarding short-term profits (and thinking) over long-term growth?

  Steven Clifford: Hedge funds are seldom patient, long-term strategic investors. To the extent that they are short-term traders they help the economy somewhat by making markets more efficient. They make millions because their customers are fools who believe one can beat the market while paying a two percent management fee plus 20 percent of the profits.

  I offer no solution to the exploitation of fools because an effective one would bankrupt at least one quarter of all businesses in America.

  800-CEO-READ: You mention how “colossal CEO pay harms American industry, curbs economic growth, and undermines democracy,” but how might it affect the average consumer? For instance, one of the four highest paid CEOs you cite is Stephen Hemsley of UnitedHealth Group, who made $102 million in 2013. Do you believe that could affect holders of UnitedHealth policies, as well?

  Steven Clifford: If CEOs are wildly overpaid, the money has to come from shareholders, employees, or consumers, but I cannot even estimate what amounts came from whom.

  800-CEO-READ: This is not even mentioning that the fact that they were backdating stock option for over a decade, and the broader effect that might have on the public. For instance, you tell us that the SEC believes UnitedHealth Group hid more than $1.5 billion in executive compensation, which effectively stole money directly from shareholders, including the California Public Employees’ Retirement System—which was the lead plaintiff is a suit against them.

  Can you explain how CEO pay structuring affects stock buybacks, and how that, in turn, not only causes the companies they run to be overvalued in the short-term, but also erodes the corporate R&D they’ll need to innovate and succeed in the long-term? And what does that do to individual corporations and the collective economy over time?

  Steven Clifford: The structure of CEO pay with its annual financial focus and its massive stock options discourages sound investments. Instead of investing for the future, companies buy back their own stock. This keeps the price high when executives cash in their options. From 2005 to 2014, stock buybacks by the S&P 500 totaled $3.7 trillion. This equaled over half of net income. It exceeded dividends to shareholders by 50%. This is $3.7 trillion that could have been invested in American industry. Instead they cut R&D by 50%. This is eating the seed corn. But the seed corn tastes quite good if you are making $30 million a year.

  800-CEO-READ: You write that “Persistent growth, which has happened only in the last two centuries, demanded inclusive economies that benefit the broad populace rather than the controlling elite.” If secular stagnationists like Robert Gordon, author of The Rise and Fall of American Growth, are correct and we simply can’t expect economic growth of the kind we’ve been used to, what incentive do those at the top have in not expanding their share of (potentially) zero-sum wealth?

  Steven Clifford: I am not an economist and should not opine on stagnation. I do note that historically plutocrats are rarely satiated with their share regardless of whether the economy is growing or stagnating.

  800-CEO-READ: I wish I could say I was surprised to encounter Michael Jensen and Dean William Meckling's paper “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure,” which has had such a huge influence on American business since they first set it forth in 1976. I’ve encountered it occasionally over the years in my reading, most directly in Roger Marin’s book, Fixing the Game. Unfortunately, I don’t think most understand how drastically it has altered the business landscape. Can you explain that and how it has contributed to the explosion in CEO pay, and what other factors have compounded it?

  When I was in business school in the late 60s we read cases that implied the stakeholder model. A company had many stakeholders other than shareholders, such as employees, customers, suppliers, financiers, communities, governmental agencies, political groups, and unions. The wise and far seeing CEO would consider the needs (and powers) of all.

  In 1976, Jensen and Meckling published the seminal work you cited that introduced the shareholder value paradigm. Over the next 15 years this became corporate dogma. While the initial paper was based on sophisticated economics, the concept of shareholder value was simplified and misapplied to hold that nothing counts other than the stock price. This has been used to justify capitalism with the gloves off, corporate takeovers, debt fueled buyouts and subsequent layoffs, and insane CEO pay. Jensen himself later modified his views but the captains of industry were no longer listening.

  ◊◊◊◊◊

  If you'd like to find out what can be done, and what you can do, to stem the rising tide of CEO compensation, pick up a copy of The CEO Pay Machine today.

  ABOUT THE AUTHOR:
  Steven Clifford served as CEO for King Broadcasting Company for five years and National Mobile Television for nine years. He has been a director of thirteen companies and has chaired the compensation committee for both public and private companies. He holds a BA from Columbia University and an MBA from Harvard Business School.

• Penguin Random House - https://www.penguinrandomhouse.com/authors/2148995/steven-clifford

  Steven Clifford
  S C
  ABOUT THE AUTHOR

  Steven Clifford served as CEO for King Broadcasting Company for five years and National Mobile Television for nine years. He has been a director of thirteen companies and has chaired the compensation committee for both public and private companies. He holds a BA from Columbia University and an MBA from Harvard Business School.

• Corporate Governance - https://www.corpgov.net/2017/09/ceo-pay-machine-destroying-america/

  Corporate Governance
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  The CEO Pay Machine (cover)
  CEO Pay Machine Destroying America

  James McRitchie, September 6, 2017 ,
  The CEO Pay Machine (cover)The CEO Pay Machine: How it Trashes America and How to Stop it (Amazon) by Steven Clifford should be mandatory reading for all compensation committees and those who vote proxies for large funds. The book is easily read and understood by the layperson. It also includes the fact-based evidence needed to convince fiduciaries that voting against most executive pay packages is one of the first steps to restoring shareholder value, company sustainability and the very foundations of American democracy.

  Why combine CEO and chair positions or pay executives with options when both practices lead to poor results? We don’t except “everyone else does it” as an excuse for harmful behavior from our teenagers; why should we accept it as a reason from compensation consultants and the former CEOs sitting on most corporate boards? Clifford also outlines possible remedies but nothing will be done unless we shift public opinion. If widely read and discussed, The CEO Pay Machine could be central to change.

  The CEO Pay Machine: My Efforts to Date
  For years, I have included the following in a footnote on my announced proxy votes for the pay of named executive officers (NEOs):

  I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from 5 percent of earnings in 1993-1995 to about 10 percent in 2001-2003.old corpgov gif

  Few firms admit to having average executives. They generally set compensation at above average for their “peer group,” which is often chosen aspirationally. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average, with their collective pay spiraling out of control. We need to slow the pace of money going to the 1% if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs.

  For more than a decade, I have been talking with those who vote proxies for large and small funds about the cumulative impact of the “Lake Woebegone effect.” Compensation committees typically pick comparison peer groups for NEOs based on aspiration. Technology companies might pick Oracle, which paid Mark Hurd $41M last year. Communications companies might look to Charter Communication’s $98M paid to Tom Rutledge and/or the $69M CBS paid Les Moonves. Tourist companies might look to Wynn Resorts paying Steve Wynn $28M. They almost never include companies based outside the United States in their peer groups because their CEOs are generally not paid as much. That is true even when such foreign companies are winning the game of competition, as they will do if we continue to reward CEOs excessively and fail to pay American workers enough to buy the products and services our companies make.

  Those responsible for voting the proxies of funds will often acknowledge the system of overpaying leads to a recalibration of the base each year and an ever increasing proportion of company wealth diverted to CEO pay. However, as long as pay is tied to “performance” (often through indicators that bear little or no correlation to effort), they generally vote in favor. In fact, many executives at funds are paid substantive bonuses using poorly designed metrics similar to those outlined by Clifford. No wonder they don’t fight executive pay.

  Research finds, institutional investors and proxy advisors fail to use economic value creation as a major factor in Say-on-Pay voting. The Alignment Gap Between: Say on Pay Voting and Creating Value.

  Admittedly, the academic studies I reference in my typical footnote are not geared to the layperson. However, just about anyone can read Steven Clifford’s book with ease. For example, his chapter “You Get Paid Like a CEO: A Fairy Tale” tells how a bank loan officer’s pay of $75,000 could easily balloon to $5,845,000 if the company decided to “pay for performance,” like how they pay their CEO. (see also What if We Talked About Diet Plans Like We Talk About Comp Plans? from As You Sow) Hold onto your seat for a fun ride, but be warned, you might get sick along the way as you read. Clifford’s explanation of CEO pay may sound like smoke and mirrors but I can assure you the techniques used to inflate pay are standard throughout corporate America.

  CEO Pay Machine: Interviews With Steven Clifford
  Normally, when I review a book I discuss several highlights. In the case of The CEO Pay Machine, that seems redundant. You can easily listen to one or both of the following two interviews and get an excellent grasp of key elements.

  Broc Romanek of TheCorporateCounsel.net posted his interview with Steven Clifford on June 15, 2017, before I knew of the book’s existence. Readers should subscribe to his “Big Legal Minds” podcast series. Romanek writes,

  Steven’s new book – “The CEO Pay Machine: How It Trashes America & How to Stop It” – is a game-changer. There’s nothing out there like it. In 280 pages, Steven clearly lays out the broken components of a typical executive pay package – along with the broken board processes that led to them.

  In detail, Steven explains how the emperor has no clothes. It’s riveting. And maddening. Luckily, in his last chapter, he explains how we can fix it. And yes, we can fix it.

  Play the interview at this link to “The CEO Pay Machine” on Big Legal Minds.
  Barry Ritholtz of the Big Picture posted a more in depth interview on August 26, 2017. Ritholtz writes,

  Clifford notes that the pay gap between chief executive officers of publicly traded U.S. firms when compared to their workers has changed dramatically — its grown 95 times faster than that of their average workers. In the 1970s, CEOs were paid 25X their employees; today, CEOs get paid 300 to 700 times more than the average worker.

  From 2011 to 2014, there were 4 CEOs who earned $100 million per year; these companies could have paid them 90% less and still generated the same returns. Despite all of the usual outrage, very people critics understand the factors that have caused the upward spiral in executive compensation… What was supposed to be pay for performance, he said, has become a scheme to transfer wealth from shareholders to insiders.

  Also worth reading is a fine review posted on July 18th by Rosanna Landis Weaver of As You Sow. Here’s a taste:

  Likewise Clifford questions whether bonuses truly motivate executives to do their very best work. As he does throughout the book, Clifford sites academic studies. “A meta-analysis of 128 studies of human behavior demonstrated that large monetary incentives tend to decrease motivation and performance.”

  But as also seen throughout the book, it is his analogies that are the most powerful. He identifies “the performance delusion” as that corporate boards can effectively measure and reward CEO performance. Here he notes, “I could observe an evening of roulette and conclude that the best gamblers were rewarded for their performance. How do I know they were the best gamblers? Easy. They won the most money.” This is how compensation consultants defend the “link” between pay and performance.

  Be sure to keep up with their blog on CEO pay and download As You Sow’s report, THE 100 MOST OVERPAID CEOS: ARE FUND MANAGERS ASLEEP AT THE WHEEL?

  CEO Pay Machine: The Five Delusions
  As I wrote above, I urge readers to listen to the above linked interviews and to buy the book. Clifford looks at the highest-paid CEOs, their companies and others to formulate the following five delusions that most boards accept as gospel:

  The 5 CEO Pay Delusions

  CEO Pay Machine: The Fix and How to Get There
  In his last chapter, Steven Clifford discusses how to fix the CEO Pay Machine to work better for shareholders and society. With regard to boards, they should:redistribution of wealth

  Increase board meetings substantially beyond the current four to six.
  Separate CEO and Chair positions.
  Pay should be established by internal equity.
  At least half of all compensation should be in restricted stock (ideally 2/3 stock, 1/3 salary).
  Payout of restricted stock is linked to years of service retirement and return above the S&P 500.
  With regard to society, Clifford recommends a luxury tax on “excess” compensation above $6M. Anything above that amount would not be tax deductible. All compensation would be included in that $6M limit, including retirement benefits, 401(k) matches, and other perks.

  Advocating a luxury tax seems new, but many have pushed to get rid of the tax deductibility of “pay for performance,” to no avail. With regard to Clifford’s recommendations to boards, academics have made similar recommendations but, as a former CEO, maybe he will get more traction.

  CEO Pay Machine: Could it Stir More Traitors from the 1%?
  What is most striking about The CEO Pay Machine is that the author is a former CEO, compensation committee member, has read Thomas Piketty, understands CEO pay is at the root of growing inequality, understands it to be a central problem to society’s ills, wants to solve the problem AND is a talented writer who knows how to tell a good story. His book is not a dry academic study from an “objective” observer. Instead, it is a conversion story by a participant.

  It has often been pointed out that people in red states vote against their own economic interest (favoring tax cuts for the wealthy and big business, regressive consumption taxes, privatization of public health and other functions, militarization, and de-regulation).

  However, most in the top 1-2% staunchly vote in their own economic interests and fight any attempt to redistribute wealth. See the Wall Street Journal video “Do You Make $400,000 a Year But Feel Broke?” depicting the hard times faced by a couple making only $400,000 a year. Such people probably have little sympathy for the poor because they can’t even imagine living with lower expectations.

  We need more traitors from the 1-2% class. In the meantime, I’ll vote against most pay packages, file proposals to separate CEO and Chair positions, and will work more closely with As You Sow. I welcome reader suggestions on shareholder proposals that can address the issues without running afoul of Rule 14a-8(i)(7) the “ordinary business” exclusion. Your comments on the book and suggested solutions are always welcome.

  100 Most Overpaid CEOs, As You Sow, Barry Ritholtz, Broc Romanek, CEO pay, CEO Pay Machine, executive pay, luxury tax, pay ratio, Rosanna Landis Weaver, say on pay, shareholder proposals, Steven Clifford, The CEO Pay Machine

• Seattle Times - https://www.seattletimes.com/business/former-ceo-spills-secrets-of-ceo-pay-and-calls-for-change/

  Business
  Former CEO spills secrets of CEO pay, and calls for change
  Originally published May 6, 2017 at 8:00 am Updated July 12, 2017 at 2:10 pm
  ‘The CEO Pay Machine” is by Steven Clifford and published by Penguin’s Blue Rider Press.
  The Dubai Font, which includes characters in both Arabic and Latin, will be integrated into Microsoft’s Office 365 suite. (DubaiFonts.com) (DubaiFont.com)

  1 of 2
  ‘The CEO Pay Machine” is by Steven Clifford and published by Penguin’s Blue Rider Press.

  Former King Broadcasting CEO Steven Clifford lays bare the generous buffet of pay packages that today’s CEOs enjoy, and recommends a strict diet. Also: Microsoft works with Dubai to produce the ‘Dubai Font’ — just don’t use it to express anything the monarchy there might dislike.

  Share story
  By Seattle Times staff
  Seattle Times business staff
  It’s not often that a CEO turns against his own kind. But Steven Clifford, former head of Seattle’s King Broadcasting Corp., is fomenting a revolt against the king’s ransom that U.S. corporate leaders routinely collect these days.

  “As a CEO, I was overpaid, but not enough. As a director of a dozen companies, I was overpaid, but not enough,” Clifford writes wryly in his new book on the subject. “I now bite the hand that fed me for many years.”

  His call to arms, “The CEO Pay Machine: How It Trashes America and How to Stop It” (Blue Rider Press/Penguin, $23), publishes May 8.

  With examples drawn from the ranks of the highest-paid American CEOs this decade, he takes on the executives, board members and consultants who cook up such a generous buffet of bonus schemes that any CEO can be judged above average — and get rewarded accordingly.

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  (In 2015, that reward was an average of $19 million for the 200 highest-paid chief executives at U.S. companies with annual revenue of at least $1 billion, according to The New York Times. The nation’s best-paid CEO in 2015 was Dara Khosrowshahi, chief executive of Bellevue-based online travel company Expedia, whose total compensation was $94.6 million.)

  Depending on the data set used, Clifford writes, large-company CEOs in 2014 were paid an average of $13.5 million or $22.6 million — “somewhere between 300 and 700 times more than the average worker made.” That contrasts with a multiple of 26 back in the 1970s.

  In an interview, Clifford said he himself was never paid more than 20 times the average worker at the two private companies he led, King Broadcasting and National Mobile Television. He was on the board — and the compensation committee — at companies both public and private.

  While acknowledging the politics of the moment don’t seem ripe for an anti-CEO insurrection, he says, “I’m hoping that it can become a political issue.”

  “Income inequality in this country is surging, and it seems to me this is one of the more outrageous examples and causes of it. This should be the low-hanging fruit when it comes to restraining income inequality.”

  Clifford contrasts the typical managerial CEO with the handful of American company builders whose names we all know. (“There are great CEOs. In my hometown of Seattle, Jeff Bezos of Amazon and Howard Schultz of Starbucks are superb.”)

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  He points out that such founders typically run their companies for many years and imprint their vision and personality on the company.

  The average Fortune 500 CEO, on the other hand, runs a company for only 4.6 years. Yet that person gets rewarded with tens of millions of dollars as if he or she is an extremely scarce commodity — even though, Clifford argues, “at large, well-managed companies … there are always many talented CEO candidates” and they are more likely to be interchangeable than uniquely qualified.

  Clifford’s book is enlivened by equal doses of whimsy and scorching rhetoric. But its main task is to pry apart the mechanisms by which companies enable CEOs to collect vast sums with little downside risk.

  Stock options, pay-for-performance bonuses — these standard dishes at the CEO buffet are examined and denounced. Stock options have “completely misaligned the CEO with shareholders” because the executive “loses nothing if the stock goes down,” thus encouraging short-term bet-the-farm thinking rather than long-term strategy, he said.

  Pay for performance, as practiced at U.S. corporations, is typically a sham with too-easy benchmarks and too many alternative ways of reaching them, Clifford argues.

  His prescription is boringly simple: “salary plus restricted stock. No pay for specific performance, no short-term bonus, no stock options … no after-the-fact adjustments by the board, and no pay consultants.”

  To tighten the screws further, the restricted stock should ideally be two-thirds of the total compensation, vesting over at least five years and much of it collectible only if shareholders did better with their stock than the S&P 500 index did.

  Though that may sound like harsh medicine to the CEO class, Clifford argues that it’s crucial for the health of the American economy.

  — Rami Grunbaum: rgrunbaum@seattletimes.com

  Dubai, Microsoft collaborate on font
  The Dubai Font, which includes characters in both Arabic and Latin, will be integrated into Microsoft’s Office 365 suite. (DubaiFonts.com) (DubaiFont.com)
  The Dubai Font, which includes characters in both Arabic and Latin, will be integrated into Microsoft’s Office 365 suite. (DubaiFonts.com) (DubaiFont.com)
  A week ago, the government of Dubai introduced the Dubai Font — a new, if not particularly distinctive, typeface for Microsoft’s Office 365, created with the aid of the technology giant — and invited people to use it to #ExpressYou.

  That’s a task citizens might find difficult in the Persian Gulf monarchy, which lacks free-speech protections and has a habit of arresting government critics, a contrast observers were quick to jump on.

  According to the terms of use of the font — which is available for free download — Dubai typeface may not be used “in any manner that goes against the public morals of the United Arab Emirates or which is offensive or an affront to the local culture and/or values of the United Arab Emirates.”

  The oil-rich United Arab Emirates, of which Dubai is a part, “often uses its affluence to mask the government’s serious human-rights problems,” including arbitrary detention and torture of people who criticize the authorities, according to Human Rights Watch.

  The UAE also shows up as a country of concern in U.S. State Department reports on human trafficking, which highlight the occasional use of forced labor, nonpayment of wages, and physical and sexual abuse of the migrant workers who make up 95 percent of the labor force.

  Dubai’s crown prince, Hamdan Bin Mohammed, struck a different tone in a news release to announce the font. The new typeface, he said, reflected the personality of the emirate, “whose vision revolves around giving, happiness, smartness, boldness, living in harmony,” among other virtues.

  The heir to the throne added that he “personally (oversaw) all the stages of the development of this font.”

  The font, which includes characters in both Arabic and Latin, will be integrated into Microsoft’s Office 365 suite.

  Dubai Font is the first Microsoft typeface created for, and named after, a city. Its lead designer — Nadine Chahine of Woburn, Massachusetts, typeface design firm Monotype — says it’s also the first time Microsoft has ever collaborated with a government on a typeface design.

  In this case, those resources included the aid of Si Daniels, a manager in Microsoft’s Office group.

  Chahine said in a Facebook post that the project would not have been possible without Daniels, who flew to Dubai for initial meetings.

  A Microsoft spokeswoman declined to answer specific questions on the record about the company’s role, instead issuing a statement indicating the company routinely offers “technical resources to ensure custom fonts are accurately rendered.”

  Samer Abu Ltaif, president of Microsoft’s Middle East and Africa sales subsidiary, was on hand for the unveiling of the font, and was quoted in the release calling the font “a great example of successful collaborations between the public and private sectors.”

  “This reinforces the vision of Dubai, which aims to become one of the most inclusive cities,” he said.

  Microsoft’s benefits from the endeavor were apparently limited to Abu Ltaif’s photo opportunity with Dubai’s leadership.

  No money changed hands between the Dubai government and Microsoft as part of the project, according to a person familiar with the matter.

  Seattle Times staff

• The Atlantic - https://www.theatlantic.com/business/archive/2017/06/how-companies-decide-ceo-pay/530127/

  How Companies Actually Decide What to Pay CEOs
  I know—for over 20 years, I helped craft some extremely generous executive-compensation packages.

  A worker in an office building
  Issei Kato / Reuters

  STEVEN CLIFFORD JUN 14, 2017 BUSINESS
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  In 2014, 500 of the highest-paid senior executives at U.S. companies made nearly 1,000 times as much money as the average American worker, after taking into account salary, bonuses, and stock-based compensation. That discrepancy is so enormous that it prompts a question: How exactly do companies come up with and calibrate the often-colossal pay packages they give to their leaders?

  Through the 1970s—when the ratio of CEOs’ pay to that of the average worker was much lower, at somewhere between 20:1 and 30:1—the lodestar was “internal equity,” or how an executive’s pay compared with that of other employees in the company. A nascent industry, executive-compensation consulting, changed this. Consultants recommended switching to “external equity,” meaning compensation would be based on what other CEOs were paid. This was merely a useful sales tool—even though the consultants didn’t have solid evidence or theoretical justification for this method, they could attract business by vowing to set ambitious goals for their clients. Still, corporations adopted the standard of external equity, and CEOs got a lot richer.

  RELATED STORY

  Corporate Executives Are Making Way More Money Than Anybody Reports

  External equity became the foundation of the series of pay practices and procedures that guarantee CEO pay will continue to skyrocket—something that I observed firsthand for over 20 years, as someone who helped companies, such as the ship-repairer Todd Shipyards (which has since been acquired) and the holding company Laird Norton Company, determine how and how much to pay their top leaders. Formally speaking, I was the member of various compensation, or “comp,” committees, which are usually made up of a few members of the company’s board and executives from other firms. (Every time I was on a company’s comp committee, I was serving as one of its board members.) The committee meets annually to recommend compensation packages for a handful of senior executives, including the CEO, and the company’s board virtually always accepts the committee’s recommendations.

  The comp committee begins its annual work of achieving external equity by approving a peer group—companies that are supposedly comparable in size and complexity—recommended by management or compensation consultants. The peers need not be in the market for the CEO’s services. For example, a health insurer might include in its peer group banks, food producers, engineering firms, and a number of other unrelated companies. But what these companies pay should be irrelevant to what a health insurer should pay, because the their businesses are so different; a CEO's expertise in one industry is of limited value in another. For their part, companies today stand by this practice, arguing that unless they put forward a competitive compensation package, their CEO will go find a better offer.

  What does tend to unite peer groups, though, is that the companies in them usually have highly paid CEOs. A study in the Journal of Financial Economics found that “compensation committees seem to be endorsing compensation peer groups that include companies with higher CEO compensation, everything else equal, possibly because such peer companies enable justification of the high level of their CEO pay.” Other studies confirm this finding.

  Once a peer group is established, the next step is to figure out how the CEO’s compensation will compare with those of the leaders at the other companies. If the median pay of a CEO’s peer group is $10 million, should he get $10 million? (I use the male pronoun here because so many of them are men.) It depends on where the company is benchmarked within this group. And every board I have ever sat on or researched benchmarked itself at the 50th, 75th, or 90th percentile, therefore targeting CEO pay at similarly exalted levels. Benchmarking below the 50th percentile says, We are a lousy company and don’t even aspire to be better. So in this sense all CEOs are above average: To be benchmarked at or above the 50th percentile, they need not do anything other than report to a board that considers its own company exceptional.

  Benchmarking is one of the main reasons that executives’ pay rises ever higher: Suppose a CEO gets benchmarked at the 75th percentile, which ends up earning him an annual pay package of $30 million. This $30 million works its way back into the peer groups of other CEOs making their pleas to comp committees, which then raises their pay. Their increased pay is then reflected in the first CEO’s own peer group down the line, once more raising his pay. In other words, every time a CEO gets a generously-benchmarked deal, he sets a higher baseline for the next time any leader has pay negotiations.

  And that is just the base compensation. The better the CEO’s company performs, the more he should be paid, right? “Pay for performance” is corporate dogma, which means that it is not unusual for a CEO who has a base salary of $15 million a year to earn $30 million or even $45 million if he surpasses his bonus targets.

  There are a number of things that make pay for performance a murky concept, and this murkiness can push CEO pay even further upward—bonuses make up a larger portion of compensation than many realize. A comp committee’s task when it comes to bonuses is to agree on a way to measure performance and then map those onto dollar amounts. This process usually involves negotiating with the CEO, much to his advantage: The board wants to keep the CEO happy since he is the captain of the team and since he holds the implicit threat of moving to another company for better pay. Enhancing these negotiations from the CEO’s standpoint, he pockets what he gets, while the directors are paying not with their own money but shareholders’.

  These negotiations are particularly troubling when a CEO is not newly appointed, but instead has been in charge of the company for years. It’s impractical, if not impossible, for board members, committed to being supportive, to transform themselves into hard-nosed negotiators, especially when the CEO controls the company’s resources (as well as the information that might be used for bonus targets) while the comp committee has neither staff nor institutional memory. Also, oftentimes, the CEO is friends with members of the board.

  Additionally, most directors know they won’t be personally liable no matter how much they pay the CEO; something called the business-judgment rule—which is derived from case law and accepts that business is inherently uncertain and risky, allowing directors to exercise their best judgment without being liable for unprofitable choices—protects them in executive-compensation decisions. Also, there is safety in numbers. Directors can reassure themselves that they are acting precisely as all other Fortune 500 board members act, and even rationalize that the profligacy of those other boards created this problem: Those boards acted irresponsibly, established ridiculous pay levels, and left us with no choice but to match them.

  And all this is to say nothing of the power CEOs hold over the agreed-upon metrics that will dictate bonuses. For example, some companies base bonuses on earnings per share (EPS), which is profit divided by the shares of stock outstanding. But EPS is not always a good measure of performance: Rising EPS may be due to nothing more than a good economy, increased industry demand, or even, in certain industries, a mild winter. And, worse, EPS is easily manipulated. Using a few accounting tricks, CEOs can make EPS do their bidding. The stock may be down, the competition dominating the market, but the CEO still gets his bonus if he hits the EPS target.

  Though a common practice, tying bonuses to budgets or other management forecasts is a bad idea; the CEO possesses a lot of information about next year’s earnings, about which the board knows comparatively very little. Tying a bonus to a budget encourages a CEO to “sandbag,” or submit an easy budget. It pays the CEO for dishonesty and penalizes him for honesty. It also, beyond the CEO’s own situation, corrupts the financial information that is critical for controlling and monitoring any organization.

  The CEO is in an even better position when negotiating bonus targets that aren’t tied to financial metrics. I have sat in comp committees that considered bonusing the submission of a plan that promised to do nothing more than increase profits or hire “dynamic” subordinates.

  A range of performance-based bonuses makes sense at first glance: If a CEO accomplishes more, he gets paid more. But given his negotiating edge, the CEO’s bonus target in effect becomes a floor. Though I could find no good data on how often CEOs beat their negotiated targets, I estimate that I have seen them do it roughly 80 percent of the time. With bonus targets and ranges, a CEO whose compensation target was $15 million can make double or triple that amount regardless of his abilities, so long as he is a good negotiator, a deft financial manipulator, or just lucky.

  And even if he misses his bonus targets, a CEO can usually rely on the sympathy of the board. Directors make adjustments to account for rain but seldom for sunshine. When a company is underperforming, directors are quick to make upward adjustments that increase earnings per share. When business is good, directors are reluctant to make downward adjustments: Why penalize the CEO when the company had a good year?

  Indeed, about a dozen of the 30 companies that comprise the Dow Jones Industrial index adjusted their earnings upward when calculating their CEO’s bonus in 2015. Consider what Nationwide Mutual Insurance did in 2011. That year, the company decided that claims from an unexpected succession of tornadoes shouldn’t count against its CEO’s performance measures, which doubled his bonus. (And here I thought weighing the risks of unusual occurrences was what insurance was all about.)

  When asked about this revision, Nationwide called this scenario “rare” and noted that its “pay-for-performance philosophy” applied throughout the company, not just to top leadership. The company said in a statement, “The Nationwide Board retroactively approved performance incentive payments for all associates in 2011 to recognize a focus on excellent customer service during a period when our customers needed us most.” That said, the doubling of the bonus of the CEO—who reportedly that year made $5.3 million in total pay—was probably more consequential than the increased bonus any given Nationwide employee saw. (Nationwide declined to disclose any specifics about the pay or bonuses of its employees beyond what it includes in filings to regulatory agencies.)

  Bonus targets are supposed to be proxies for how a company is doing in the short term. But it’s a constant struggle in business to balance the long term against the short term. So, rather than leave this to the wisdom and judgment of the CEO and board, corporations also give out “equity awards,” or stock-based pay, to make sure executives’ eyes are on how the company will be doing in several years. The thinking here is that a CEO who’s receiving stock is incentivized to do what he can to not to let that stock drop in value.

  Equity awards, which typically make up over half of a CEO’s realized compensation, usually come in two forms. The first is a stock option, which means the executive can buy a fixed number of shares in the future at today’s market price, even if the stock has appreciated since the options were issued. The second is restricted stock, which means the executive is assigned shares, but doesn’t own them until certain conditions are met.

  Paying CEOs in stock further props up their pay: When the economy is thriving, stock prices can rise across the board, and thus most CEOs’ pay rises too. But even if the market cools off, expectations for what CEOs should be paid—as reinforced by benchmarking and other mechanisms described above—tend not to come down when that happens. Moreover, in order to make more money from selling the stock they were given, CEOs can induce a higher share price by having the company buy back its own shares; a share buyback, though, can come at the expense of initiatives that might serve the company better in the long run, including funding research and development or employee training.

  The majority of companies I researched did not require the CEO to accomplish anything to receive equity bonuses. Instead, they were awarded with the curt explanation that the compensation was in line with the CEO’s peer group. When a performance test was required, it was often based on a negotiated criterion and allowed the CEO to receive far more than the initial target. In yet another way, executive pay is shaped by what is ostensibly pay for performance, but is more often than not a routine jump over a very low hurdle.

  * * *

  There are lots of people who make enormous amounts of money. Athletes do. So do movie stars. So why pick on CEOs?

  Perhaps it’s because athletes’ and movie stars’ compensation determined more directly by supply and demand. NBA teams bid for LeBron James because his skills are portable. He would be a superstar anywhere he played. But CEOs, whose pay is not set by a comparably competitive auction market, are different: No matter what their peer group might indicate, their skills are seldom portable. A successful CEO must fully understand a single company—its finances, products, personnel, culture, competitors, and so on. Such knowledge and skills are best gained working within the company and not worth much beyond it and its closest competitors. Therefore, companies seldom raid others for CEOs: Most CEOs at big companies were appointed through an internal promotion, and CEOs rarely jump between big companies. (That’s because when they do, they usually don’t find much success.)

  Another, more symbolic reason that people get upset about CEOs’ salaries, and not celebrities’, is that the value of celebrities is more obvious. LeBron James is extremely talented, and fans are paying good money to watch him play night after night. Tom Cruise is the face of the Mission: Impossible franchise. If a movie in that series makes hundreds of millions of dollars in ticket sales, it wouldn’t seem unfair for him to make 5 percent, even 10 percent, of that. If James Patterson sells millions of books, it’d be weird for him not to have millions of dollars.

  A CEO’s value-added is less obvious. He’s providing guidance and oversight, sure, but his typical employee is the one actually producing a good or service. So when a CEO is earning hundreds or thousands of times as much as that typical employee, it seems unfair in a way that’s more visceral and even, in a way, logical. And another important difference is that few are harmed when LeBron James or Tom Cruise make a ton of money—it’s unlikely that a team or a studio is going to lower its ticket prices if either were paid any less. Meanwhile, there is a case to be made that outsize CEO pay harms employees, the economy, and even companies themselves.

  So what can make boards and CEOs act differently? The responses to high executive compensation so far—public outrage, say-on-pay votes, SEC-mandated disclosures, congressional hearings, newspaper editorials—have limited value. From what I have seen, only a blunt instrument will alter behavior. My preferred blunt instrument is a luxury tax. For every dollar a company pays any executive over, say, $6 million, it would pay a dollar in luxury tax. This very simple solution would fix the problem immediately. Is it politically possible? It doesn’t seem like it’ll happen anytime soon, but a candidate running on a platform that includes paying CEOs less would probably do quite well.

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Clifford, Steven: THE CEO PAY MACHINE
Kirkus Reviews.
(Apr. 1, 2017):
COPYRIGHT 2017 Kirkus Media LLC
http://www.kirkusreviews.com/
Full Text:
Clifford, Steven THE CEO PAY MACHINE Blue Rider Press (Adult Nonfiction) $23.00 5, 16 ISBN: 978-0-7352-
1239-8
A former CEO of two corporations shatters the myths and explains the stupidity regarding astronomical salaries at the
top of the business world.Clifford, who served as CEO of King Broadcasting Company and National Mobile
Television, expresses outrage that boards of directors have fallen into the trap of compensating CEOs with tens of
millions of dollars annually without evidence-based reasoning. The author demonstrates that corporations could pay
much less and that no CEO deserves an outlandish compensation package. After tracing the evolution of compensation
for CEOs and delineating the factors that lead boards of directors to approve them, Clifford offers detailed critiques of
four corporations that pay their CEOs as much as $200 million annually despite mediocre results: Stephen Hemsley at
insurer UnitedHealth Group, John Hammergren at pharmaceutical distributor McKesson, Charif Souki at liquid natural
gas supplier Cheniere Energy, and David Zaslav at cable TV programmer Discovery Communications, who made
$224 million in one year. Clifford explains the similarities (and minor differences) among the "pay machine" at each
corporation, a machine that operates to the detriment of stockholders and harms morale of employees, many of whom
make as much as 500 times less than the CEO. The author is especially puzzled by the myth that CEOs, most of whom
are already highly motivated, require stupendously large bonus compensation to become even more motivated.
Occasionally, Clifford expands his focus to tell readers how the ills of the pay machine extend beyond any given
corporation to harm all of society--e.g., the escalation of income inequality between the 1 percent and the remainder of
the population. The author also provides a helpful glossary to define such terms as "amortization," "golden
parachutes," "realized compensation," and "stock appreciation rights." A well-thought-out, clearly written expose
marred only by some repetition of the main points.
Source Citation (MLA 8th
Edition)
"Clifford, Steven: THE CEO PAY MACHINE." Kirkus Reviews, 1 Apr. 2017. General OneFile,
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p=ITOF&sw=w&u=schlager&v=2.1&id=GALE%7CA487668420&it=r&asid=26c0f2066692f89b7a89944f60d26a3c.
Accessed 4 Oct. 2017.
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The CEO Pay Machine: How It Trashes America
and How to Stop It
Publishers Weekly.
264.7 (Feb. 13, 2017): p60.
COPYRIGHT 2017 PWxyz, LLC
http://www.publishersweekly.com/
Full Text:
The CEO Pay Machine: How It Trashes America and How to Stop It
Steven Clifford. Blue Rider, $23 (288p) ISBN 978-0-7352-1239-8
Clifford, former CEO of King Broadcasting Company and National Mobile Television, takes an enlightening and
refreshingly candid look at the contentious topic of chief executive compensation. Clifford examines the current norm
for CEO pay structures, which includes short-term bonuses and long-term incentives that are typically measured
against poorly defined, subjective criteria. He questions the wisdom of an out-of-control bonus system that limits an
organization's progress or induces a CEO to act in a way that may be in conflict with a company's best interests.
Instead, he advocates replacing an annual bonus with restricted stock, making the CEO a shareholder with a vested
interest in the organization's success. Other convincing and well-reasoned recommendations include prohibiting CEOs
from also being board chairpersons, linking pay to internal equity, and instituting a luxury tax on excess compensation.
This sound and persuasive argument holds the key to aligning CEO pay with a company's future success, and is
essential reading for board members seeking to better serve their shareholders. (May)
Caption: The spiral fossil that spawned the search for the archaic shark Helicoprion, from Susan Ewing's Resurrecting
the Shark (reviewed on p. 66).
Source Citation (MLA 8th
Edition)
"The CEO Pay Machine: How It Trashes America and How to Stop It." Publishers Weekly, 13 Feb. 2017, p. 60.
General OneFile, go.galegroup.com/ps/i.do?
p=ITOF&sw=w&u=schlager&v=2.1&id=GALE%7CA482198194&it=r&asid=ffb70dc67bd9ec8b7b46432210611f01.
Accessed 4 Oct. 2017.
Gale Document Number: GALE|A482198194

"Clifford, Steven: THE CEO PAY MACHINE." Kirkus Reviews, 1 Apr. 2017. General OneFile, go.galegroup.com/ps/i.do?p=ITOF&sw=w&u=schlager&v=2.1&id=GALE%7CA487668420&it=r. Accessed 4 Oct. 2017. "The CEO Pay Machine: How It Trashes America and How to Stop It." Publishers Weekly, 13 Feb. 2017, p. 60. General OneFile, go.galegroup.com/ps/i.do? p=ITOF&sw=w&u=schlager&v=2.1&id=GALE%7CA482198194&it=r. Accessed 4 Oct. 2017.

• Huffington Post
  http://www.huffingtonpost.com/entry/the-ceo-pay-machine-how-can-we-stop-it_us_597a52efe4b09982b737631e
  Word count: 2148

  Dean Baker, Contributor
  Co-Director of the Center for Economic and Policy Research
  The CEO Pay Machine: How Can We Stop It?
  It is almost impossible to get fired from a board by shareholders.
  07/27/2017 04:56 pm ET Updated Jul 28, 2017

  FANGXIANUO VIA GETTY IMAGES

  The ratio of the pay of corporate chief executive officers (CEO) to ordinary workers has exploded in the last 40 years. It was a bit over 20 to 1 at the start of the 1970s, now it is well over 200 to 1, and in good years for CEOs, it can be more than 300 to 1. Steven Clifford’s book, The CEO Pay Machine (Blue Rider Press) is an effort to explain how this happened and what we can do about it.

  Clifford speaks from firsthand experience, having spent 13 years as a CEO of major corporations and having subsequently sat on more than a dozen corporate boards. Clifford makes it clear at the onset that he deplores the run-up in CEO pay, but he is trying to explain why it happened.

  Clifford’s basic story is that the process that determines pay has become hopelessly corrupted. At the most basic level, the corporate boards that are supposed to represent shareholders and put a check on CEO pay have little interest in doing so. Clifford describes a process of whereby boards are captured by CEOs and other top management. Being a board member is a cushy job, typically paying well over $100,000 a year for around 150 hours of work a year, by Clifford’s calculation. With many boards paying $300,000 or $400,000 a year, the pay can be in the range of $3,000 an hour.

  And, as Clifford notes, it is almost impossible to get fired from a board by shareholders. More than 99 percent of the directors who are nominated by the board for reappointment win their election. Furthermore, the boards are typically used to working with the CEOs. The CEOs and their staff are the ones who provide them with information. Often the CEO himself is a board member, usually the chair.

  In this context, board members have little reason or incentive to ever challenge CEO pay. After all, the CEO is their friend, why would anyone object to giving their friend more money at the expense of a diverse group of shareholders, the vast majority of whom the director does not know. Furthermore, what difference would a few extra dollars make to the typical shareholder, if this is what it takes to add a few million to the CEOs pay?

  Clifford goes through all the rationales for CEOs getting paid salaries in the tens or even hundreds of millions of dollars. Part of the story is compensation consultants, who always seem to want to raise pay, in part because they are often doing other business for the CEO. Part of the story is the belief that their CEO is always above average and the company would suffer if they lost their CEO to a competitor.

  Clifford dismisses the idea that CEOs are worth anything comparable to their current pay. He argues that the inequality created by bloated CEO pay is destructive both to the companies themselves and to democracy. I would add to Clifford’s list of complaints that excessive CEO pay contributes to a distorted pay structure throughout the economy. After all, if a moderately competent CEO of a mid-sized company can pocket $5 million a year, then certainly the president of a major university or non-profit foundation is worth at least $1 or $2 million. And more pay for these people means less for everyone else. That is how arithmetic works.

  Clifford’s solution includes some reforms of corporate boards, but most importantly a 100 percent luxury tax (taken from team salary caps in professional sports) on CEO pay in excess of $6 million. In effect, this would mean that the company must pay a dollar to the government for every dollar it pays CEOs in excess of this $6 million ceiling.

  While most people would likely agree that CEOs are seriously overpaid, it is worth backing up a bit in this story in order to assess Clifford’s proposed solution. At the most basic level there is the question of whether CEOs are worth their pay in the sense of producing returns to shareholders that warrant their seven, eight, and even nine figure salaries. We’ll ignore for purposes of this discussion that companies may have other goals than returns to shareholders. The question is simply whether CEOs produce returns to shareholders.

  Clifford cites several major studies indicating that pay is not closely correlated with returns. He notes that pay is often associated with a large element of luck, such as the CEO of an oil company getting a huge payout because the share price of the company surged along with world oil prices. Clifford also points out that CEOs are generally not especially mobile. They have firm-specific skills, so even a hugely talented CEO may not have a good second option if her current company won’t agree to a big raise.

  This point is actually quite important and does not get nearly enough attention in the debate. If even an unusually good CEO has nowhere else to go then the company does not have to pay an exorbitant salary to keep her. A CEO who isn’t getting paid an amount equal to their value to the company could decide to simply quit and drop out the CEO business, but this works the other way as well. A CEO who has accumulated hundreds of millions of dollars may opt to retire at an early age, since they would have little need of more money.

  Anyhow, if we accept that CEOs are not worth their pay to shareholders, then the implication is that shareholders are being ripped off. If a CEO is getting paid $20 million or perhaps even $200 million, in a context where a $5 million CEO could have provided the same return, then this is the same as if a contractor overcharged the company by that amount. The shareholders should be upset and want to do something about it.

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  Clifford argues cogently that the corporate governance structure largely blocks the ability of shareholders to challenge CEO pay, but this raises an interesting issue with his proposed luxury tax, the big bazooka in his anti-CEO pay arsenal. If the corporate governance structure is so corrupt as to hand out tens of millions of dollars of shareholders’ money in excess pay to CEOs, is there any reason to believe that we will stop the rip-off with Clifford’s luxury tax? There are good reasons for skepticism.

  First, the tax will of course require a law passed by Congress. It is very easy to put clauses in a CEO luxury tax law that will make it worthless for all practical purposes.

  If that sounds like an outlandish claim, we need look no further than Clifford’s book to find a precedent. In 1993, President Clinton followed through on a campaign pledge to end the tax deductibility of any CEO compensation in excess of $1 million a year. This passed Congress as an amendment to a huge budget bill with the small provision that pay related to performance was exempted.

  This exemption was big enough to drive a truck through. In subsequent years the vast majority of CEO pay took the form of stock options or grants of restricted stock, both of which were deemed as being related to performance and therefore exempted from the cap. If anything, the change in the law accelerated the rise in CEO pay, since in the 1990s the value of options did not even have to be included as an expense on corporate balance sheets. Companies were effectively able to hand millions to their top executives at no cost on their books. (Accounting rules were changed in the last decade so that the value of options is now listed as an expense.)

  If we could somehow muster the political power to impose a luxury tax along the lines recommended by Clifford, is there any reason to believe that we will more successful in making it a real tax than in 1993? Certainly the folks who installed the performance pay loophole understood what they were doing. But very few of the people concerned about excessive CEO pay realized that this exercise was a complete waste of time. Do we need Round II of this charade?

  But let’s suppose that we get a serious luxury tax, without the loopholes, but do nothing about the corruption of corporate governance. Won’t directors still want to help their friends in the CEO suite? There are many ways they could evade this cap, most obviously by providing a range of luxury services (think of yachts, corporate jets, vacation homes, etc.) which could go far towards making up for the pay cut.

  Providing these items for personal use may be a violation of the law, but if the people on the inside want to do it, how successful will the I.R.S. or other enforcement agencies be in cracking down? It will all officially be listed as being for business purposes, so it would take some serious sleuthing to determine that this was not the case.

  If we don’t address the governance problem, it’s not clear that the luxury tax would lead to much of a clamp down on pay, even if we got it without loopholes. After all, if a board is willing to pay $20 million to a CEO who is worth $3 million, maybe they would pay $34 million for the CEO as well (the pay, plus a $14 million tax). To the directors, this is still just other people’s money.

  If the basic problem is a corrupt corporate governance structure, then the solution must involve reforming the governance structure. This means changing the incentives for directors and restructuring the voting process so that insiders do not tightly control it.

  In the former category, directors need some real incentive to crackdown on CEO pay. One mechanism that I have proposed elsewhere is putting some teeth in the now advisory Say on Pay votes. Suppose that directors lost their annual stipend if a Say on Pay vote when down to defeat. This would create some real downside risk to overpaying a CEO.

  Ideally this could be an amendment to the law requiring Say on Pay (amendment provision in Dodd-Frank), but this is also the sort of measure that activists could pressure companies to put in place voluntarily in their corporate charters. After all, less than 3 percent of compensation packages are defeated. How many companies would like to say that they are in the bottom 3 percent of corporate governance in terms of their ability to rein in CEO pay?

  Also, as a political matter, giving more voice to shareholders in setting CEO pay seems a considerably stronger position than arguing for a stiff tax on compensation the government has determined to be excessive. The former is arguably making the market work better. Why would anyone be opposed to giving shareholders more control over what their companies do? The latter is clearly the government interfering with a contract between a company and its CEO. There are other routes for giving the directors a serious downside risk for excessive CEO pay, but this seems an essential governance reform in order to ensure that directors have the right incentive to put downward pressure on CEO pay.

  The other issue is changing who gets to vote in shareholder elections. As it stands now, the fund managers that act as trustees for shares held in mutual funds often cast the majority of votes in shareholder elections. These managers have no direct interest in holding down the pay of CEOs. In many cases they have ongoing business relationships with CEOs who they count on to keep them informed of developments with the company.

  It seems reasonable to strip these managers of their votes unless the actual owners of the shares explicitly instruct them in casting their votes. Here again, the direction of the change is to give the ostensible owners of the company more control over the company. Can a believer in free market capitalism oppose this?

  In short, Clifford’s book is an entertaining insider’s take on the problem of excessive CEO pay and the corruption of corporate governance. But when it comes to solutions, it falls somewhat short.

• Fortune
  http://fortune.com/2017/04/19/executive-compensation-ceo-pay/
  Word count: 1453

  FINANCE CEO PAY COMMENTARY
  CEO Pay Is Out of Control. Here's How to Rein It In

  Nicolas Rapp
  You don't have to break the bank to reward a leader's success.

  By Roger Lowenstein Apr 19th, 2017 6:30 AM ET
  This past march, Walt Disney Co. (DIS, -0.27%) settled a claim by the Department of Labor that it had violated the law by deducting the cost of uniforms from employees’ wages—which brought the workers’ pay below the federal minimum wage. The violations, which occurred at Disney facilities in Florida over the past few years, didn’t add up to a lot of money. Disney will pay back wages of $3.8 million to 16,000 workers (about $230 per employee). What made the story galling is that the entire expense is roughly in line with what Robert Iger, Disney’s CEO, earns in a single month. Last year Iger netted $44 million.

  Excessive CEO pay is hardly a new topic, but with the urgent concern over economic inequality, it’s a timely one. I thought about the Disney story while reading Steven Clifford’s The CEO Pay Machine: How It Trashes America and How to Stop It. The author imagines a better future—one in which compensation packages would be simplified, CEO pay would be downsized, and incentives would be properly geared toward companies’ long-term success.

  Clifford, a retired CEO of King Broadcasting and a serial corporate director who admits to having grabbed his share of the loot, argues that CEO pay is a machine—that is, driven by rote policies that automatically send pay into the stratosphere. Why else would CEOs get so much, and through such a bizarre array of categories—in Iger’s case, salary, stock, option awards, “non-equity incentive,” pension, and “other”? In 2018, Iger will be eligible for a “performance-based retention award,” just in case hauling in $130 million–plus over the past 36 months didn’t do the trick.

  CEOs don’t need this much for motivation. Iger is a competent, responsible executive. He would get out of bed, put on his tie, and go to work for less. Directors ratify such arrangements because everybody else does it. At least in theory, boards monitor each individual category of pay, but they never challenge the structure of the pay machine itself. Directors follow self-interest (with director fees running well into six figures, who wants to rock the boat?). They are reinforced by consultants who know that complex packages justify their existence.

  The outcome is that directors subscribe to a collective delusion that such arrangements are necessary. Compensation is determined in an echo chamber in which gargantuan pay is considered normal.

  Related: CEOs Just Had Their Largest Pay Raise in Three Years

  It wasn’t always this way. In 1978, CEOs earned 30 times the take of the average employee; now, according to the Economic Policy Institute, they get 276 times as much. These numbers betray an attitudinal upheaval. Time past, a CEO’s pay was set on a scale with others in the same organization. This was dubbed “internal equity.” But in the 1980s, a consultant named Milton Rock sold the idea of “external equity.” Now, as if CEOs belong to a tribe of super­humans, they are paid on a scale with only their “peer CEOs.”

  This is highly problematic. First, the peers often aren’t really peers. As Clifford recounts, to set its CEO’s pay, UnitedHealth Group (UNH, +0.92%) recently used a “peer” group stuffed with companies unrelated to health insurance, such as Apple (AAPL, -0.67%) , Coca-Cola (KO, +0.75%) , and Citigroup (C, -0.11%) . It’s ludicrous to think that UnitedHealth’s CEO could be a candidate to run Apple. It assumes a generic market for CEOs that doesn’t exist.

  And few compensation committees aim for the median of those peers. Most target the 60th percentile—or the 75th. ­Apparently every CEO is above average. In marked contrast, when it comes to performance hurdles, boards avoid peer groups like the plague. (No board tells its CEO, “To earn a bonus, you’ll have to raise sales faster than Amazon.”)

  Rather, boards generally peg annual bonuses to a series of customized and too-easy benchmarks. This process is conceptually flawed, because they incentivize CEOs to focus on short-term goals. Moreover, CEOs are rewarded for hitting targets that are either mushily subjective or can be easily manipulated. If you want more sales, simply cut prices. If you want more cash flow, hold back investment.
  When targets aren’t hit, boards often reward the CEO anyway. Nationwide Mutual Insurance once doubled the boss’s bonus by erasing the effect of claims from tornados on earnings.

  See Who Tops the List of Highest Paid CEOs
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  Worst of all, CEOs get bonuses for merely doing their job. The CEO of Cheniere Energy, Clifford notes, got a bonus for completing the financing on a liquefied natural-gas terminal. If the terminal is profitable, the CEO will be rewarded via his holdings of stock. If it isn’t, why pay him for it? Iger got a bonus, in part, for relaunching Star Wars. Iger has done a good job and should be paid for it—but once, not three times.

  Boards should be trying to get CEOs thinking like owners. That was why stock options became the rage in the 1990s. But it turned out that riskless options doled out for free don’t motivate like shares you have bought and paid for. Indeed, CEOs who get them year after year can’t help making a bundle because, sooner or later, their stock will hit a low, meaning that year’s option grant will be struck at a dirt-cheap price. Such arrangements make CEOs wealthy merely for recovering ground they previously lost.

  Overall, the combination of annual and long-term incentives blurs the CEO’s focus. As Clifford observes, “Business is a constant struggle to balance the long term against the short term.” The pay machine relieves CEOs of having to reconcile these agendas. They get paid short term and long term, no matter their results.

  How to break the cycle? In Clifford’s ideal, CEOs would get a salary and restricted stock—and nothing more. The stock couldn’t be cashed until retirement, and half of it would be canceled if shareholders didn’t realize an above-average return over the CEO’s tenure.

  To induce boards to consider such radical change and to lower total compensation, Clifford suggests a federal luxury tax, a dollar-for-dollar tax on executive pay in any form above $6 million a year. Politically, that will be a tough sell. A less intrusive alternative, I think, would be to give more power to the shareholders who own the store. A rule enacted in the Dodd-Frank reforms requires nonbinding shareholder votes on executive pay. Why not tweak the rule so that on pay packages above a certain threshold—say $5 million—their vote is binding? Some companies would still pay more. But to avoid a vote and potentially messy publicity, a lot of boards would hold the line at $4.99 million.

  Since pay, ultimately, will be a matter of board choice, companies that do it right could exercise some leadership. Many corporations run by founders or long-serving CEOs—Amazon (AMZN, +0.87%) , Facebook (FB, -0.91%) , Alphabet (GOOGL, -0.56%) , Berkshire Hathaway—pay their CEOs far less than their peers. Their CEOs, in the main, have gotten rich in the same proportion as their stockholders. These firms should play up the fact that their CEOs are motivated by a desire for long-term success and the knowledge that their equity will be worth more if they do succeed. Why does any executive need or deserve more?

  The issue of executive pay is sometimes dismissed with the argument that in a big corporation a few million more or less doesn’t matter. But distorted incentives do matter. And as we saw in November, Americans are angry and have stopped trusting the system. Licensed larceny in the corner office helped elect a populist demagogue to the White House. One step to winning back trust would be to insist that CEOs be treated like other mortals.

  Roger Lowenstein’s Origins of the Crash critiqued executive pay. His latest book is America’s Bank.

  A version of this article appears in the May 1, 2017 issue of Fortune with the headline “Breaking the CEO Pay Cycle.” We’ve included affiliate links in this article. Click here to learn what those are.

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• The Globe and Mail
  https://beta.theglobeandmail.com/report-on-business/careers/management/the-five-collective-delusions-of-ceo-compensation/article35126627/?ref=http://www.theglobeandmail.com&
  Word count: 867

  MONDAY MORNING MANAGER
  The five collective delusions of CEO compensation

  Harvey Schachter
  HARVEY SCHACHTER
  SPECIAL TO THE GLOBE AND MAIL
  MAY 30, 2017
  MAY 29, 2017
  Steven Clifford thinks CEO pay at large companies is outrageous.

  Boards are throwing away money in an act of collective delusion, overpaying chief executive officers for reasons that don't make any sense.

  Most people would agree with him. "Corporate directors are the only sentient group who think that CEO pay levels today are justified," he says. But where he stands out is that he is a member of that tribe – a retired CEO and active board member at three companies. Yet, as he started to look into the matter he decided current practice is crazy and took dead aim in a new book, The CEO Pay Machine.

  Some time around the 1980s, that pay machine started. There are advisers to boards – Mr. Clifford calls them "the consulting mafia" – with metrics and analyses supporting the current system, with its large bonus payouts. Board members are supposed to be hard-headed and skeptical. But there is safety in numbers – if every other company is buying into The CEO Pay Machine, he says in an interview, why should you dissent? And there is no upside to questioning the system. That will just anger the CEO and compensation committee.

  Since the system took hold, Mr. Clifford notes, CEO pay has skyrocketed and economic growth rates have gone down. He doesn't think that's accidental, since the system overvalues the CEO; undervalues everyone else, reducing morale and productivity; and focuses the CEO on short-term actions to increase his stock options rather than long-term growth for the company. As one example, share buybacks are the rage these days. A company interested in growing for the future will invest money in research and innovation. A CEO interested in his remuneration – aware that the average CEO lasts less than five years at Fortune 500 companies – knows that when he buys back shares that can immediately increase earnings per share and thus goose the stock and his bonus.

  He lists these delusions boards succumb to:

  The importance delusion: The CEO is thought to be primarily responsible for the performance of the company, so if the company does well the CEO should get most of the credit and rewards. But the CEO is not the corporation. Mr. Clifford figures a CEO may be responsible for 10 per cent of the performance, the high end of research estimates, and thus a different CEO might manage a few percentage points more or less growth. "Most of a CEO's success is blind luck, being in the right place at the right time, or fit, having the skills needed now," he says.

  The market delusion: There's supposedly a competitive market for CEOs, driven by supply and demand – high compensation reflects the low supply of good CEOs and the large number of companies bidding for them. In fact, bidding is rare and most CEOs come up the ranks in their own company, so a more fitting compensation would focus on internal equity and comparisons to other levels in the firm hierarchy. A CEO is not like LeBron James, able to shift to another basketball team and carry it to the championship. Usually the training and skills fit only a certain company or industry.

  The motivation delusion: Bonuses are supposedly the best way to motivate CEOs to do their jobs. But CEOs should want to do a good job because that's the way they are wired. Studies show financial incentives only work for simple tasks. For CEOs, incentives are unnecessary if not counterproductive.

  The performance delusion: Corporate boards can supposedly measure and reward CEO performance effectively. But Mr. Clifford insists they actually can't – business is too complex and random. However, knowing the goals, the CEO can skew performance to hit the numbers, not always in the company's real interest.

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  The alignment delusion: Stock options and measurable bonus goals align the interests of the CEOs and shareholders. But CEOs only have an upside – they cash in if stock goes up but don't see their fortunes plunge down as can happen for shareholders. "They aren't aligned at all," he says.

  Mr. Clifford recommends keeping CEO compensation to salary and restricted stock – stock that might only become available in chunks over a five-year period and that they can only cash in on retirement. But he figures boards won't do that so governments must act: For every dollar a company pays a CEO over $6-million, it should pay $1 in tax. It can still pay the CEO $40-million but then owes the government $34-million.

  It's a radical proposal, but he insists "there is absolutely no justification for today's CEO pay in America and it hurts the economy and the companies."

  Harvey Schachter is a Kingston, Ont.-based writer specializing in management issues. He writes Monday Morning Manager and management book reviews for the print edition of Report on Business and an online column, Power Points. E-mail Harvey Schachter

• Financial Times
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  Word count: 341

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  The CEO Pay Machine: How It Trashes America and How To Stop It, by Steven Clifford

  The shocking thing about chief executive pay is not that it has reached such giddy heights — somewhere between 300 and 700 times the earnings of the average US worker, according to this book — but that it got there in the face of so little protest.

  Clifford charges into battle in a quest to change this. A former chief executive who has served on the boards of 13 companies, he is a take-no-prisoners guide to the US corporate world and the men and women who are its beneficiaries.

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  Much of the preamble to Clifford’s case is familiar, from his explanation of Jensen and Meckling’s work on shareholder value, which paved the way for the explosion of stock options, to his summary of Thomas Piketty’s recent critique of inequality.

  Where the book gets going is when Clifford starts naming names, listing the highest paid CEOs and explaining how they made so much despite the theoretical checks and balances of corporate governance.

  Clifford is weaker on solutions — a luxury tax on “excess compensation” seems an even longer shot under Donald Trump than it did under Barack Obama. But this remains a strong introduction to an increasingly important problem.

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