Comments on Pay without Performance

This paper is the author's contribution to the Columbia University Symposium on Bebchuk and Fried's Pay without Performance: The Unfulfilled Promise of Executive Compensation. The paper seeks to explain why our society tolerates the current high levels of executive pay. The paper argues that cash compensation (salary and bonus) is not what critics are really concerned about but rather their concern is primarily directed at values associated with executive stock options. The paper takes the position that the actual value of option compensation is lower than is suggested by Black-Scholes and other methods of valuation at the time options are granted. The paper also makes the argument that asset managers often receive amounts that substantially exceed CEO pay levels and yet asset manager pay is not generally subject to the criticism directed at CEO pay. Finally, the paper discusses the broader context of economic forces at work on business enterprises that must be taken into account in examining executive pay.