There has been a long standing debate about the pay of the CEO’s of companies. Proponents of this debate argue that CEO’s of successful companies are effectively performing the duties for which they were hired that is; maximization of shareholder wealth. Therefore, if CEO’s are paid in terms of stocks or salary then this is justifiable. Proponents further argue that the media reports instances where shareholders are given high salaries, benefits, and stocks but they fail to report events where CEO’s have been fired and their pay has been reduced as a result of poor company performance. It is the management and leadership styles of the CEO that eventually determines the success of any company. The board of directors’ gives special importance in deciding the pay rates for company executives; thus, ensuring that executives are paid for what they are worth. People who suggest that CEO compensation is not justified by their performance have raised specific concerns. The first concern which they address is that CEO pay is more a product of competition rather than performance. The pay for CEO’s in other companies is seen as a benchmark to pay the CEO of a specific company. The second justification against this debate suggests that compensation committees are independent; therefore, they pay is overestimated rather than being in-line with their real worth.
There are certain areas of disagreement within this debate. CEO’s who are working hard to improve the company’s performance are not given the due credit because of the widespread criticisms they receive from different factions within society. The job of the CEO is largely cognition driven because of which it is difficult to quantify their efforts. Unlike other position in the company, the work of the CEO is given less importance because they are more concerned with overlooking tasks and giving a basic idea of what needs to be done. Another area of disagreement is that, while people are finding it difficult to afford the basic necessities from working in these companies where CEO’s are being paid lump-sum amounts, the CEO’s are enjoying luxurious lifestyles. Certain companies even have CSR activities which include helping the poor. But critics suggest that how are these CSR activities justifiable when the CEO’s are paid enormous amounts in a year. There have also been instances where CEO’s have failed their companies but are still paid huge amounts in terms of salary, benefits, and company stocks. In such a case, it is possible to conclude that the performance and pay for CEO’s are independent of each other.
In my opinion, CEO’s are paid higher than the job they actually perform. But this can be justified by the hard work and effort that their work demands. The job of a CEO cannot be done by any ordinary employee of the firm. CEO’s have to undertake immense pressure and stress from internal as well as external sources. Every employee of an organization even at the managerial levels is not going to be able to combat the stress and pressures placed upon the CEO. As the case suggests, the work that CEO’s perform determine the end success of the company and is a major factor in determining the share price of the company. As the CEO is employed for this sole purpose; therefore, if they are able to do this then their pay is justified. As their work cannot be quantified, their pay cannot be based on pure pay-for-performance system.
