Over and over again we hear about this CEO here and that CEO there and his colossal paycheck. As the story goes, while these CEOs are sitting on top and racking it up, all the little people are running around down below living on pennies.
The CEO is an important role, which is why just about every company has one or some sort of variation of the role. Because of their importance and responsibility, CEOs require higher pay. However, questions arise when the CEO’s job performance is lackluster but he or she continues to receive pay increases while employees take the brunt of the financial losses that are essentially the CEO’s fault.
Even when the CEO is doing a good job, many organizations are challenged to determine how much pay is adequate and how much is excessive. More times than not, CEO pay seems to be on the side of excessive, which in turn leads to other issues such as decreased company morale, unwanted media coverage, and so on.
What should CEOs make?
Different companies take different approaches to managing CEO pay, and still the debate rages on. The general consensus seems to be that CEOs make too much. In fact, the gap between what the general public believes is fair and the reality is often astronomical. When researchers polled people from various countries, cultures, income levels, religions, and so on, the majority reported that they’d like to see the income gap shrink.
In a 1984 essay, the late Peter Drucker wrote: “I have often advised managers that a 20 to 1 salary ratio is the limit beyond which they can not go if they don’t want resentment and falling morale to hit their companies.” The current ratio is said to be closer to 400 to 1.
Bad for business
If something has the ability to sweepingly affect employee morale in a negative capacity, it is clearly bad for business and thus should be addressed. And yet, although various organizations have made different attempts to combat the sky-high pay of its CEOs, not much progress is being made, and morale continues to suffer.
Across the world different countries are taking various regulatory approaches to the issue. When these approaches are properly executed, they’ve proven to be pretty successful. Many of these strategies allow for the voting of shareholders to help determine various aspects of adequate spending, including the pay of a company’s leadership. Thus far these measures seem to be making the biggest difference.
Do you think CEOs should earn less?