Let’s discuss a CEO first and foremost. What is the actual job description? They manage the companies overall operations. This can have a wide range of things associated with it, but in general, it’s more of planning and direction. For example, choosing to start a new R&D project or restructuring the marketing department. Qualifications to actual become a CEO, are more on the management and leadership side. As a CEO is in charge of a lot of people, they need to have experience and understanding in those fields.
What factors contribute to the large pay difference between executive level officers and other workers?
The issue is a lot more complex than simply, “oh these people started the company so their pay is way higher”. According to an article released by Gretchen Gavett, on Harvard Business Review, everything regarding the countries economy actually comes into play here. From the perspective of the country’s level of development, down to the social hierarchy of its people. Executive pay changes greatly based upon these.
One statement made in the article, “The development of the banking sector. The more concentrated the sector is, the more that should ‘monitor and control firms and thus constrain CEO power and pay'”. According to this statement, ideally, when banks have more power the high level players will all end up restricting each other from becoming too greedy and gouging everyone.
Often times, there are people arguing about the massive amounts of money brought in by the executive level people. Some claim that they make way too much. In a sense, they could be correct. High level people will often take private jets for corporate meetings, or blow wild, frivolous amounts of money on trashy art when that cash could be better spent on charity.
Another perspective, is where does the money come from to expand the business? Who takes on all the risk? There’s a saying for high risk, high reward. If there’s no reward then why take the risk? Besides already massively successful businesses, executives of smaller business will often put everything they have on the line to grow themselves. The workers do not take on that kind of risk, they can find a job elsewhere if needed.
Personally, I do not believe changes should be made. If workers believe that their compensation is unjust, then they will flee to the competitor. That’s the invisible hand of the market playing it’s most important role. An issue would arise in the event that there are no competitors within the sector. Monopolies hold more danger than the pay of a CEO ever could.
Bibliography:
Gavett, G. (2022, November 1). The factors that lead to high CEO pay. Harvard Business Review. Retrieved March 19, 2023, from https://hbr.org/2015/05/the-factors-that-lead-to-high-ceo-pay