Lake Woebegon Boardrooms

An article in the Washington Post shows that even when corporate performance is poor, CEO pay continues to skyrocket. Kevin Sharer, CEO of Amgen, earns $21 million a year, a raise of $6 million over last year. He also has two (2!) corporate jets.

The company lost 3% on its investment last year, and 7% over the last five years. Amgen has had to close plants and fire workers. Sure, times have been tough during the recession. A lot of us have had to cut back.

But not CEOs.

In fact:

Since the 1970s, median pay for executives at the nation’s largest companies has more than quadrupled, even after adjusting for inflation, according to researchers. Over the same period, pay for a typical non-supervisory worker has dropped more than 10 percent, according to Bureau of Labor statistics.

Why are these guys getting monster raises when everyone else is losing their jobs, or working 60 hour weeks, or staying in jobs that they absolutely hate but can't afford to lose their health coverage?

Corporate boards of directors are incestuous men's clubs: CEOs consider a third of directors on their boards to be personal friends. CEOs consider half the compensation committees to be their personal friends.

Corporate boards intentionally give raises that exceed the median CEO salary because they don't want to lose "valuable talent." Paul Volcker called the the "Lake Woebegon Effect," a reference to Garrison Keillor's Prairie Home Companion, where all the children are above average.

Companies like Adobe, Discovery Communications and Countrywide Financial have official polices that CEOs should be compensated at 75 to 90% of peer companies.

This is completely nuts and totally unsustainable. It creates never-ending cycle of skyrocketing CEO pay. It's far worse than the cost of living raises built into Social Securiry and some union contracts, which these days is a few percent -- if at all.

The thing is, CEOs aren't above average. I've personally met half a dozen CEOs, and they're not brilliant masters of the universe. The vast majority are hired guns, and not entrepreneurs. They took no big risks and had no innovative ideas. They just know someone on the search committee, or got hired through the old boys' network.

It's not unreasonable for the founder of a company, say a Bill Gates or a Steve Jobs, to command high salaries: without them the company wouldn't exist. But hired CEOs are just employees, like the janitors, engineers and secretaries. (Even worse than hired CEOs are the heirs of corporate founders who take over daddy's job.) Hired guns are in no way special or indispensable to the operation of the company. As we've seen over and over again at hundreds of companies, CEOs are hired and fired constantly, and they don't really make any difference. They are as interchangeable as any assembly line employee.

Look at HP: they just hired Meg Whitman, the former head of eBay, who spent $160 million of her own money in her failed run for governor of California. She has no experience in HP's current line of business -- making computers, printers and scientific instruments -- which HP is going to ditch in favor of a new strategy to focus on "enterprise, commercial and government markets." That is, they're not going to make stuff anymore, but instead sell services to other companies and government.

Whitman's predecessor, Leo Apotheker, only worked there 11 months, but will receive $13 million in various compensation just for screwing the pooch. His predecessor, Mark Hurd, was fired for trying to screw Jodie Fisher, a marketing support consultant and former actress.

Finally, Carly Fiorino (who spent $5.5 million of her own money on an unsuccessful Senate campaign) resigned as CEO of HP in 2005 after a scandal where private investigators illegally obtained the phone records of journalists and board members.

HP's story is not unique, it is quite typical of corporate America. If you can get behind the wall of secrecy at any company you will find they have lots of skeletons in the closet.

• Rupert Murdoch's News of the World was in the news again for stealing stories from other newspapers by bribing their employees. This is separate from their phone hacking and police bribery scandal.

• The Koch brothers have been illegally selling equipment to Iran. Its French subsidiary has been bribing officials to win contracts and when Koch's investigator reported this she was taken off the inquiry and then fired.

So do you really think that private multinational corporations are more efficient and more trustworthy than a government where we have the power to hire and fire the CEO (president, governor, mayor) and the board of directors (Congress, state legislatures, city councils) at our whim?