January 8, 2007
Private Equity and CEO Pay
The main charge against excessive CEO pay is the claim that CEO's are taking advantage of diffusely located shareholders in publicly-traded companies. A potential answer is the stunning data on the pay of CEOs in privately held companies. Private equity firms are offering similar pay packages for CEOs in privately held portfolio companies. The shareholders in such firms have no control problems; they are in firm control. There are two possible answers: First, the public firm pay packages have artificially set the market price for the private firms; and/or second, the problem is not shareholder confiscation but rather an issue of how a given among of compensation is dividend among employees (CEO on down to line workers). In other words, the CEO no longer divides the bounty with the rest of the employees of the company.
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