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Comparing CEO Compensation to the President and Why It Is Not a Good Practice

It seems that goofy comments are becoming more the norm than the exception.  An article which ran in the Washington Times this month titled "TVA's top executive gets 10 times Obama's pay"  gives the opinion that the CEO of the Tenessee Valley Authority, shouldn’t make more than the President.  The TVA (ticker: TVC) is a corporation which was enacted by Congress in 1933, and is the largest provider of electricity in the country.  This is just one of the many articles published comparing CEO compensation to the President of the United States which has become a very popular topic in the days of Dodd-Frank.  

There is a number of reasons why comparing compensation to the President is a terrible comparison, but here are a few:

  • The perks afforded to the president are not accounted for: free house, free security, free meals, free travel, pension;
  • Payment to the president is not pay for performance, in fact one could argue it’s just the opposite, but that’s for another debate;
  • The President’s post term compensation is slightly higher than compensation while in office. For example, Bill Clinton’s net worth exiting the White House was $1.5mm, as of 2010 it was approaching $100mm. That’s $10mm/year for 10 years. 

While apples to apples comparison are good for CEO compensation, this is an apple and onion. And that presidential onion comparison has a few unaccounted-for-layers that bring tears to the eyes.

by Chris Crawford

COO and Executive Director, Longnecker & Associates

 

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