CEO Pay, is it too much?

As we all know, executive pay has continued to rise over the years, faster (it seems) than the pay of the non-executives. This begs the question, is it too much?

Let’s start with learning what a CEO does. According to an article on the website The Balance, a Chief Executive Officer 9CEO) operates in the big picture. The CEO is responsible for planning the company’s overall strategy and policies. Every aspect of the company’s operations falls onto the CEO’s desk. (Heathfield 2022)

So, with someone who has that much responsibility, shouldn’t they be paid higher? If the CEO messes up with strategy or policy, it can kill the company. If they are right, the shareholders will see great profits. But, how much is too much?

CEO’s (and other executives) are compensated in a couple of ways. The first is a base salary. This can vary based on the size of the company and other factors, but it tends to be the smallest piece. As an example, Eric Yuan, the CEO of Zoom, had a base salary of $301,731 in 2022, however. His total compensation was over $1.1 million for that same time. (O’Connor 2023). This shows another way that CEO’s are compensated, that is in bonuses and stock options. Stock options are when CEO’s are given the chance to buy a company’s stock at a discount price.

How did we get to this? Well, there are a couple of things to consider. As companies grow, there was more competition for the CEO talent, so compensation packages got higher to attract the talent, and when it became a requirement to disclose the CEO’s salaries, this caused even more competition. The other factor came from boards that were made up of CEO’s from other companies, that would give salary increases in exchange for a salary increase from their own company.

There are two views in this issue. One is that this compensation is excessive. This comes (partially) from the growing gap in salaries between CEO’s and the “average worker”. The other view is that these salaries are appropriate because of the responsibilities that a CEO has to take on.

So how do we solve this? Well, one of the complaints about the system is that some CEO’s (many in fact) make this compensation even when the company is crashing. So a solution would be to only reward CEO’s when the company is doing good. A pay scale based on performance only. Another solution would be to not have boards made up of CEO’s from other companies. This can remove any hint of impropriety that may exist.

Works Cited

Heathfield, Susan. 2022. “Chief Executive Officer (CEO) Job Description.” the balance. September 13. Accessed March 8, 2023. https://www.thebalancemoney.com/what-does-a-chief-executive-officer-ceo-do-1918528#:~:text=The%20chief%20executive%20officer%20(CEO,key%20external%20and%20internal%20factors.

O’Connor, Claire. 2023. “CEOs taking pay cuts as uncertain economic conditions weigh.” FOX Business. February 20. Accessed March 8, 2023. https://www.foxbusiness.com/business-leaders/ceos-taking-pay-cuts-uncertain-economic-conditions-weigh.

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