Why the News Media Attack Corporate Executives

Read Part I here.

The reason for such outcry about CEO behavior is not because what CEOs do is arrogant – it just appears that way. It is not because their salaries are out of line – if that were the case, celebrities’ salaries, which are higher on average than CEO salaries, should also lead to outcry. The reason for the hysteria is more because of public ignorance and allegations made by the news media starting about 20 years ago.

“Although the business press had followed CEO pay for decades, CEO pay did not really become a public ‘issue’ until 1991. Feature stories on CEO pay aired on the nightly news broadcasts of the three major networks in the Spring of 1991, and CNN, 60 minutes and Nightline devoted segments to CEO pay. The controversy heightened with the November 1991 introduction of Graef Crystal’s (1991) expose on CEO pay, In Search of Excess, and exploded following President George Bush’s ill-timed pilgrimage to Japan in January 1992, accompanied by an entourage of highly paid U.S. executives…. By the mid-1990s, media and political attention focused on the growing disparity between CEO pay and average worker pay, and on escalating CEO pay in downsizing companies. Newsweek ran a February 1996 cover story on ‘Corporate Killers: The Hitmen,’ which identified CEOs both by their salaries and by how many employees had been fired in recent restructurings…” (source, pp. 50-51).

The problem with such news media created invective is that most people do not understand how businesses operate and why CEOs make the money that they do. Most people, who in America earn a middle-class income, simply cannot fathom the amount of money some of these CEOs take home, not to mention the perceived lucrative packages received when CEOs are fired.

Because we are used to our own meager salaries, and typically, living paycheck-to-paycheck, the world of multi-million dollar salaries appears foreign. It is therefore easy to generate assumptions about such salaries.

CEO compensation has been climbing steadily in the past two decades, and the perception that goes along with astronomical compensation packages is often negative. Kevin Murphy of the Marshall School of Business at the University of Southern California, wrote a paper in 1999 that outlined emerging trends in CEO compensation, as well as the “populist attack on wealth that followed the so-called ‘excesses of the 1980s” (pg. 1). Murphy provides a background on the reality of CEO salaries, and it is important to understand the four key components of executive pay packages:

1. Base salary
2. Annual bonuses tied to accounting performance
3. Stock options, and
4. Long-term incentive plans (pg. 3)

So Alan Mulally of Ford and other CEOs may forego their salaries as a symbolic public relations gesture – and to appease grandstanding politicians – but they’re still getting along just fine. And the public and news media remain uninformed of just how complex the issue of CEO compensation really is, while compelling headlines about alleged corporate malfeasance continue to be written.

Read Part III, the conclusion, tomorrow.