You often hear of the CEO of a company making millions of dollars a year, and it’s tempting to think they’re getting overpaid. But here’s what Mr. T has to say about that.

Gents, I run an investment management firm and we’ve looked quite a bit into the whole topic of senior executives and their compensation. Based on what I’ve seen so far, I can tell you that the general public has it backwards. They thought that CEO pay was so obscenely high, that if it the numbers were publicly known, they would go down. So they passed a law and now every public company needs to make public the pay of its top 5 executives. And what happened as a result? The executives’ pay went up quite substantially. [In fact, one can argue that it’s as high as it is today because the government made it mandatory to publish that information. 🙂]

The fact is that the person at the top has tremendous influence on how the company is doing. Just look at the story of Apple and Steve Jobs. He founded the firm in the 70’s, and it became a top brand and a darling of the investment world in a few short years. Then the board of the company got rid of him around 1985 and by 1997 the company was on its deathbed. Then Apple hired him back, and in 14 years he made them the most valuable company in the whole world. This isn’t luck. It’s not that he was born in the right place at the right time. It wasn’t the connections of his dad (a Syrian immigrant, by the way). The guy was so good that when they announced the iPhone in 2007, Google’s team working on their own smart phone had to scrap the whole project and start all over again, copying most of Jobs’ ideas.

The fact is that even highly compensated CEOs get paid to the tune of 0.1% of the company’s value per year, but their work makes a difference much greater than 0.1%. The cold, hard truth is that the CEOs are actually underpaid. So when the numbers became public, the guys in the lower half basically said “wait a minute, not only are you paying me much less than I’m making you, but you’re also paying me less than my peers”, and so the boards (the shareholder representatives) had to always make sure they’re paying their CEOs at or above the average level for the CEO’s level of competence, industry, the size of the firm, etc. and overall executive pay started creeping up, up, up…

But again, we’re talking about small sums of money in the grand scheme of things. They make for juicy headlines for the mass media, but their economic effect is minimal. Frankly, it’s a societal breach of the tenth commandment. People should be focused on their own work and their own contributions. And if they see somebody making (in a free-market transaction) a hundred times more money than them, they should be inspired that such success is possible, rather than wish for that person to go down. And remember, even if you’re middle class in the U.S., you’re actually making a hundred times more money than quite a few people walking on this Earth. Not only that, but unlike the top CEOs, you’re probably not that much more talented than those making 1% of what you’re making. You’re actually the one who’s been born in the right place at the right time.