Cisco co-founder explains why CEO pay today is nuts

Sandy Lerner will forever be known in the tech industry for a few things: she co-founded Cisco Systems with her then husband, Leonard Bosack. She and her husband were dramatically ousted after their venture capitalist, Don Valentine of Sequoia Capital, installed his own pick as CEO.

Lerner then went on to have a fabulously interesting career doing things like founding a cosmetics company (Urban Decay, which sold to Moet Hennessy Louis Vuitton), running an organic farm and restoring an English manor once owned by Jane Austin's brother.

In a recent interview with Inc. about entrepreneurship, she was asked about the fairness of CEO pay today and if compensation really should be so much higher than worker pay. Note that Cisco's longest running CEO, John Chambers, earned $19 million in 2015, most of which was a $14.5 million stock award. The average employee at Cisco earns $138,861, according to Glassdoor. 

Her answer: The compensation for CEOs is all messed up. Their pay should be based on really long-term objectives, measured in years or decades.

"What's a CEO's mission? To leave the business, and the organization in a better condition as a profit-making entity than he or she found it. And we don't pay CEOs on that basis. We pay CEOs on the basis of the previous quarter's profit," she says adding she doesn't understand why anyone looking at the health of a company "thinks that's a rational way to calculate remuneration. I certainly don't."

She says, "It used to be that CEOs basically had skin in the game. And now it's all upside."

In Lerner's case, she earned most of her money after leaving Cisco from her and her husband's Cisco stock. Cisco went public, their stake was worth about $85 million and they cashed out.