Although this does depend company to company, a CEO has an incredible amount of work responsibilities. Realistically, more responsibilities than we will ever know as their tasks are forever changing. However, taking the trend statistics that were provided through the PBS document, I believe it is highly inappropriate that since 1973, the pay gap between CEO’s and other employees are increasing more and more. This ratio started at 45:1, and grew to 500:1 by 2002. Is this applicable to every company? Absolutely not. However, it is quite alarming that it was an average statistic in the early 2000’s. Although there has been major light shed on this topic since then, there is still an unfair pay ratio today. Upon further research, the CEO-to-worker pay ratio for CVS Health Corporation is 434:1. Yes, it is lower than the ratio given in 2002, but is this large gap necessary even when a company starts to heavily grow? In my opinion, no, but it doesn’t stop there. Some companies are within the thousands as far as their ratio goes! So, why is there a rise within executive compensation?
There are many factors as to why the CEO-to-worker pay ratio has increased. One of them being the extreme competitive nature within the CEO market – especially since the pandemic hit. For obvious reasons, each company wants to have the best CEO, but how do they capture the attention of the best individuals for the job? As each company raises their incentives, surrounding companies will also do the same in order to have the best of the best within their organization. In turn, this creates a positive feedback loop of some sort that only raises the gap within the pay ratio as companies want to remain competitive.
Additionally, since the pandemic has negatively impacted businesses around the world, many companies are willing to do anything to gain the best individual for their CEO position in order to save themselves. However, this plays into the positive feedback loop even more so. Another factor as to why there is a rise in executive compensation is that CEO’s naturally have more power to change their incentives and pay. With such power at the company, they are able to have more stock options and other benefits that only widen the unbalanced ratio.
There is not one aspect or recommendation that can simply work to decrease the large ratio gap. However, there are things that companies can implement in order to manage their own CEO-to-worker pay ratio. For example, they can implement policies that limit CEO incentives and their power to change such incentives and other benefits such as stock options. Companies do want to be competitive in order to have the best and most fitting individual as their CEO, but they need to implement policies in order to maintain an appropriate ratio among their other workers. There also needs to be a change in ideology. Companies do need to pay their CEO’s a fair and competitive wage, however, if their ratio widens, how would this look within the public eye as there is already a push to close the gap a bit? For the purpose of public relations and fair employee compensations, firms need to address this issue through possible policies that limit and reduce some CEO incentives.
