Whatever you might think about the now-bollixed contract negotiations between the Washington Nationals and Jim Riggleman, it is a textbook example of an arms-length bargaining process between an employee looking to get the best job at the highest salary and a company looking to get the best manager at the lowest price.
In that respect, it bears no resemblance to the way big corporations go about negotiating a contract with a top executive. In most cases, boards of directors decide who they want and convey their decision to the lucky candidate or the executive whose contract is up for renewal. It’s only then, after the company has essentially given away its bargaining leverage, that the salary negotiation begins. Seizing his advantage, the executive asks for an outrageous pay package and after some gentle shadow boxing agrees to accept something slightly less.
So begins the escalation of chief executive pay.
The data from this spring’s proxy season is mostly in and it shows that after two years of decline, the average compensation for chief executives of the 500 largest U.S. corporations is on the rise again. According to Governance Metrics International, the average “total realized compensation” (salary, bonus and benefits plus any value realized from the exercise of stock options and vesting of stock grants and retirement benefits) was just under $12 million in 2010, up 18 percent from 2009 but still below the $15 million peak in 2007.