CEO’s Just Keeping Up With the Joneses

Oct. 4, 2011 – Owners of California-based biotech firm Amgen had a difficult year in 2010, losing 3% of shareholder value. Over the past five years, shareholders lost 7% and Amgen reduced their workforce by nearly 3,000 people as they closed some manufacturing facilities. Some plants faced severe cutbacks.

Amgen CEO Kevin W. Sharer was earning about $15 million a year during this period and had command of two corporate jets. Yet in March, despite the company’s difficult situation, the board of directors decided Sharer should get a 37% raise to $21 million a year, according to Peter Whoriskey in The Washington Post.

This was what is known as “peer benchmarking.” A 2011 regulatory filing the article quotes pegged the decision based on a desire to pay a “value closer to the 75th percentile of the peer group.” According to Whoriskey, “This is how it’s done in corporate America. At Amgen and the vast majority of large U.S. companies, boards aim to pay their executives at levels equal to or above the median for executives at similar companies.”

Of course, high school math will tell you this is a perpetual motion machine of CEO pay raises. As more and more companies try to place their chief executives’ pay in the top percentile, the percentile keeps moving up.

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