Are High-Paid U.S. CEOs Risk-Averse?

By Mark Roberti

Some executives are now paid so much that they might not be willing to make the changes needed for companies to survive in the long term.

The New York Times recently published an article about executive pay, based on an annual study conducted for the paper by Equilar (see Want to Make Money Like a C.E.O.? Work for 275 Years). The article is mainly focused on the disparity of income between CEOs and employees, but there is a bigger question related to rising CEO salaries in the United States: are they stifling innovation?

The article states that the median pay for the 200 highest-paid chief executives last year was $17.5 million, and that they received an average raise of 14 percent. Most of the CEO compensation comes from stock options or awards, which is intended to align the CEO's interests with those of the company for which he or she works. If the company's stock does well, the CEO will do well since his or her stock will vest and then can be sold at the higher stock price.

But here's the problem. Most stock and option grants vests within three years. What if you have a project—say, an RFID deployment—that will start to pay for itself only in year three or four? Do you make the investment, knowing that you might not hit your targets in year one and may not see the stock price go up as a result of the new efficiencies for four or five years?

I believe—and I don't have any hard data to back this up—that U.S. CEOs have become risk-averse. They don't want to invest in large-scale technology projects because if they fail, they could lose their job and their very big salary. Technology investments could, in the short term, make it more difficult to make the numbers Wall Street is forecasting, and if they don't hit those numbers, they know their stock price will take a hit.

I've talked to numerous American executives, including one last week, who believe radio frequency identification technology could deliver value to their business, but who cannot get funding approved. I also see companies in Europe adopting RFID more quickly. Europe does have a longer history with RFID—ski resorts have been using RFID in Europe for nearly two decades—but it could also be that CEOs in Europe generally are paid less (about 12 to 25 times the median worker's salary, vs. 400 to 500 times in the United States).

I'm not against CEOs making a lot of money (although I paid myself a below-market salary when I was the CEO of my company). Certainly, there are CEOs who are worth whatever they are paid, and there are CEOs willing to take risks, but I know that if I could pad my bank account by $20 million just to do what I've been doing, I'd be less inclined to take risks on new technologies. Let me know what you think by posting comments below.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark's opinions, visit the RFID Journal Blog or the Editor's Note archive.