Sunday, October 26, 2014
Should CEOs really be paid less?
http://www.economist.com/news/business-books-quarterly/21627553-should-ceos-really-be-paid-less-moneybags
This article talks about how in recent generations the pay rate that CEOs have received on average has increased. It states in the 1970s CEOs were paid about 25 times as much as a normal employee, compared to today they are paid on average about 300 times as much as the normal employees. The article mentions the fact that this was not always the case. It wasn't until large companies started providing CEOs with performance based pay that they started to earn these exorbitant salaries. Around the 1970s a few companies introduced these performance based salaries and it quickly took off. Their view was that the best way to make sure that CEOs performed best for their bosses (stockholders) was to give them large numbers of options and shares of stock. According to the article if CEOs were to be paid with salaries, like they once were, then companies/shareholders would be better off. This has to do with the fact that since the CEOs own so much stock it takes away from profits that can be reinvested in the company or given out to more shareholders. While I do agree with the fact that paying CEOs salaries would be better for the companies profits, I don't think there is a better way to encourage these CEOs to try and perform better than before than the performance based salaries. If the CEOs know there will be more of a reward if they increase overall performance at the company they will be willing to work harder.
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I tend to agree with the last statement but I just wonder as we discussed in class a little. If a CEO is making 20 million or 10 million a year, does his life style really change? How much more is he motivated by each extra dollar? It's something that obviously cannot be quantified but maybe the pay growth could slow a little and they will still be doing just as well.
ReplyDeleteI feel like that though CEO's are overpaid they have a lot of responsibility and did alto of work to get to that position. CEO's are basically responsible for any decision made regarding the company and they are the ones responsible if an ethical or social issue comes up. Most CEOs have a work experience of 15 years and I feel they do deserve to be compensated for the work they put in. Most companies that perform well pay their CEOs what they deserve in comparison to those companies that do not perform as well.
ReplyDeleteCEOs might be a bit overpaid, but if it causes the company to succeed then I'm all for it. 300 times the normal employee's salary is ridiculous to think about, but if the company earns that much revenue and can afford to pay the CEO that much then that business should be discussed between the company and the CEO. Since their salaries are performance based, it provides as an incentive for the CEO to work longer and harder hours. The companies performance is all based on the CEO. If the company succeeds the CEO gets paid. If the company fails the CEO goes.
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