Week 9: Executive Pay

Job Description: Generally the education requirement for CEOs is at minimum a bachelor’s degree in some field of business or something closely related. However, it is extremely common for CEOs to have a Master’s degree in Business or related studies. CEOs need to be good leaders, have time management skills, problem-solving skills, be good decision-makers, be able to delegate, ability to motivate others, have the ability to adapt, and be generally business-minded individuals. CEOs lead the company and are responsible for the operations and overall management of the organization. They are generally the individual that is responsible for the profitability of the company on a year-to-year basis. They are in charge of the overall master agenda and strategy for the business. As well, as being a point of contact between operations, employees, other executives with the board of directors, and stakeholders. Traditionally, CEOs make big business decisions that change the strategy and the overall operation of the company. They also need to learn to delegate so that these changes, decisions, and ideas can come to fruition to drive profit. Aside from their assigned job duties CEOs also tend to be responsible for the motivation and morale of their organization.

Questions:

  1. Over the years many Executives of companies are being paid extremely large amounts of compensation and the gap between their pay and the pay of their employees continues to widen. One of the main reasons for this rise in pay is the competitiveness of the pay for highly qualified and well-performing CEOs. As explained in the PBS video “Executive Pay” many companies wanted to secure the best CEO they could to help earn the most profit for their company, this also means they have to out pay the other companies that are looking for similarly qualified CEOs. This means that they want to pay above average, but if all of the companies are actively looking to pay above the average then is constantly increasing, and therefore the pay aiming to be “above” average is too. Along the same lines with the internet taking off and becoming more accessible, publicly traded companies had to start making CEO salaries public information, and other companies would notice instantly and would increase their pay to make it more competitive (Executive Pay). The knowledge of what other CEOs were being paid also had CEOs asking for increases in their compensation to keep up and directors of boards who also acted as CEOs to approve higher pay, knowing it would come back in their favor later (Executive Pay). Additionally, many companies in the 1990s started offering long-term incentives and low-priced stock in the company which then turned into large sums of money that were not options for the other employees of their companies (Executive Pay).
  2. Many people see the pay of CEOs to be excessive. This can be true, especially when considering the gap in their wages and those of their employees. This large gap can cause employees to become unmotivated, and even resent their executives, because they feel like they are under-appreciated and that their CEOs are not making sacrifices for the better of the company like they do with their lower wages (Current Controversies). Additionally, when companies face hard financial times, such as the 2008 recession, the immediate solution is to lay off thousands of employees and take away all of their wages, rather than paying CEOs a fraction of their astronomical wages (Swift). On the other hand, there are many people who think that their pay can be justified because the executives are responsible for much of the profit of the companies, and therefore earn their compensation, like one professional discussed in the PBS video. Additionally, CEOs are some of the most highly-qualified individuals that work in their organization so being paid the most for their keen business sense and experience makes sense.
  3. When considering the compensation of CEOs I would want to go for more of a pay-for-performance approach. I would want to pay the CEO a portion or a set grade for a certain amount of profitability each year. If these people are truly responsible for the profits of the company and are as qualified, experienced, and knowledgable as their large pay sites then they should be able to continue making these amounts in pay for performance. It makes sense that if their large pay is going to be justified by these factors, the results of these factors should have to be a larger determinant of the pay.

Sources:

“Current Controversies in Executive Compensation: ‘Issues of Justice and Fairness’.” Knowledge at Wharton, knowledge.wharton.upenn.edu/podcast/knowledge-at-wharton-podcast/current-controversies-in-executive-compensation-issues-of-justice-and-fairness/.

Executive Pay: The Issues: December 2, 2002. (2002). MacNeil-Lehrer Productions.

Hayes, Adam. Chief Executive Officer (CEO): What They Do vs. Other Chief, Investopedia. 2022. Roleshttps://www.investopedia.com/terms/c/ceo.asp#:~:text=CEOs%20are%20responsible%20for%20managing,and%20communicating%20with%20the%20board.

Swift, Michele. Week 9 Slides, Canvas. 2023.

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