Is executive compensation excessive or appropriate? This is a difficult and complex question to answer. When I first was asked to address the question the first thought that popped into my head was “yes, executive compensation is absolutely necessary and appropriate!” I believe the executive compensation is appropriate because executives own the most responsibility in their roles, and this comes with more risk and liability as well as complexity of tasks. CEOs are responsible for leading their entire organization and making the difficult decisions that other employees, including top managers, do not have to; these decisions may lead the company in the direction of greater success, or it may have negative consequences that then fall back on the CEO. It only makes sense that an individual in this tier of a position would be compensated significantly higher than other employees. Additionally, level of education and experience is a major factor in determining compensation. In order to hold a CEO position, an individual will likely have a great deal of prior experience spanning well over their career that makes them specially qualified for such a role, as well as an advanced degree to go with it.
I watched the 2002 PBS Segment on Executive Pay and that sparked interest and new thoughts on the topic for me, in some regard. I thought it really interesting that the executive pay gap had widened so significantly over the decades and the analysis of causation contributing to that. What stood out to me was the study that showed one third of companies strived to pay their executives in the top 25% of the pay scale, and that the other two thirds of companies sought to pay their executives above average, leaving no companies seeking to pay at or below the industry average. Because of this situation, it was inevitable that every year the gap would continue to significantly widen as the salaries of executives would keep increasing as companies felt obligated to keep up. It does pose an interesting question of when does it all stop… or even slow down? If the pay gap is appropriate now, at what point won’t it be anymore?
Strategic compensation packages I believe are the most essential tool to recruit executives and motivate them to lead companies toward competitive advantage. If industry competitors are offering significantly higher salaries and compensation packages, it will be extremely difficult to attract and retain qualified candidates to fill that kind of a role… and that really goes for any position; with CEOs however, the high risk and responsibility associated with the type of role makes this all the more true, which is why the pay gap has continued to widen so drastically.
