1. INTRODUCTION
The salaries of chief executives is an issue that is heavily discussed on social media and on news outlets, Increasing and decreasing CEO pay has large effects on a lot of people worldwide. This essay will discuss to what extent or if at all chief executive salaries are excessive and should be regulated. I will be arguing for the opinion that chief executive salaries are excessive and should be regulated, as on average chief executive officers earn up to 180 times more than the average UK employee earns a year (M West 2016) which may lead to demotivation of the workforce and reduce overall productivity and reputation of the company. The outline of the essay is as follows, I will discuss points supporting the opinion that chief executives are overpaid and require regulation as well as points opposing this opinion.
2. MOTIVATION AND WAGE GAP
Excessive is defined as anything that is more than necessary, and something is only regulated when it has negative impacts. The salaries of chief executives may be considered excessive when regular employees are demotivated by the significant gap between their wages, the CPID released research that more than half of UK employees believed high levels of chief executive pay demotivated them at work and is bad for the reputation of the business (M West 2016). This shows that high pay of chief executive officers does indeed have a negative impact on the motivation of the employees, and this may lower productivity in the long run which is bad for the business. It also doesn’t help the reputation of the business as it shows that employees aren’t highly regarded in comparison with chief executive officers. In this case regulation should be used either by increasing the salaries of employees to motivate them by using incentives, or decreasing the salaries of chief executives to a less demotivating figure this can be identified by asking employees what they think is a reasonable salary a chief executive officer should be paid.
3. SMALL TALENT POOL
On the other hand it is argued that chief executives are only paid so highly because only a handful of people have the skill set to get the job done so the salaries of chief executives are very competitive as there is high demand for them but only a few available to do the job, so it is only natural that they be paid very highly. Remuneration committees scout chief executive officers using head-hunters which severely reduces the pool of individuals eligible for the job (M West 2016), since the job pool is so small it is also relatively easy to keep the wages of chief executives high as they have more bargaining power than people in other job pools. Although the system used to scout chief executive officer may be subject to manipulation (M West 2016), Chief executives are highly paid because there simply aren’t enough people available to get the job done so the high wages compensate for the level of precise skills required to get the job done properly.
4. RECENT SCRUTINY OF CEO’s
Another point in favor of the opinion that chief executives are overpaid and require regulation is the recent increase in scrutiny of the chief executive officers in publically listed companies. As of now publically listed companies must provide a page in the annual report that shareholders can view all the money earned by a chief executive for the year and shareholders can also vote to reduce the pay packages of chief executives (M West 2016). This is evidence that the salaries of chief executives are excessive and need regulation, an example of this is when 52% of shareholders voted on the reduction of the chief executive officer of Burberry’s pay package, cash allowance and shares (M west 2016)
5. TAINTED PUBLIC PERCEPTION OF CEO’s
A recent survey carried out by Stanford graduate school shows that chief executive pay is much higher than the public perceives, 1200 Americans where asked how much money they thought the average chief executive makes as well as how they should be paid and if government intervention is required (S Lynch). The results showed that most people underestimated the actual average chief executive salary by a tenth, most people though chief executives earned a million dollars a year when in reality the average chief executive makes 10million a year (S Lynch 2016). This tells us that there is imperfect information between the public and CEO’s, in many parts of America it is unfathomable that chief executives earn as much as they do (S Lynch). So it is considered immoral that individuals be paid so highly when some people are living on less than a dollar a day.
6. SHARP RISE IN CEO PAY OVER TIME
As of now chief executives earn 210 to 300 times more than their workers in comparison to 1965 a chief executive would earn 20 times more than his workers (S Lynch 2016). Some may think inflation is the cost of this drastic change but according to the economic policy institute Chief executive pay rose more than 997% when adjusted for inflation between 1978 and 2014 (S Lynch 2016). A reason for this massive rise in pay is that overtime markets become more competitive and in order to get the best of the best high prices must be paid, most people are uncertain that chief executives actually add that value to the firm or don’t think they should be so heavily rewarded for it.
7. HOW MUCH IS THE AVERAGE CEO REALLY PAID
Most samples of chief executives assessed are all from major companies that make a lot of money and employ by the masses, so it may be a bit misleading to generalize all chief executives using such a narrow sample. Most samples include 300 to 350 firms when in reality there are more than 7million private firms (A Davis), this may mean averages don’t represent the entire market for chief executives which is inaccurate and misleading when averages are taken from the 7million firms it is calculated that the actual average chief executive pay is $187,000 which doesn’t look to bad when compared with the average wage of a worker (A Davis 2016). A popular critique of this argument is that it is prudent to assume all firms hire a CEO when in actuality only the firms with large number of employees will hire a chief executive and most of the firms included in the 7 million are in fact small firms that do not require a chief executive. The Bureau of Labor Statistics say that there are actually only 207,660 chief executives in the private sector.
8. HIGH PAY IS JUST ONE OF THE PERKS OF BEING CEO
Chief executives are selected, appointed and chosen by the firms themselves or the board of directors (which is mostly compiled of CEO’s and former CEO’s), the selection process is gruesome and often traitorous but once a CEO is appointed he can in effect set his own pay (A Hartung 2015), the main problem here is a morality problem as chief executives make more in a day than employees make a year this says a lot as to how employees are valued and the ethics of the firm. In reality no one has more say on how much a chief executive should be paid than the chief executives themselves, for CEO Dan Price all it took was a simple conversation with one of his employees to realize how unfair the wage gap was and convinced him to slash his 1.1million dollar salary by 90% to 70,000 to increase the wages of his employees (M West 2016). This act of generosity and leadership made headlines worldwide and won multiple humanitarian awards.
9. CONCLUSION
To conclude I stand with the opinion that chief executive officers are paid excessively and require some form of regulation, because this essay provides subsequent evidence that CEO’s make way too much in comparison to employees who work more hours a week than them, it is immoral for the difference in pay be so vast between individuals. Evidence shows regulation is in practice hard to implement because not that many people have a direct say in how much CEO’s get paid so not many people can affect it, and g
overnment intervention is heavily frowned upon in the private sector. So the CEO’s themselves must take charge and reduce their wages as to better the lives of other employees and improve the reputation of the firm by self-implemented regulation.
CONTENTS
1. INTRODUCTION
2. MOTIVATION AND WAGE GAP
3. SMALL TALENT POOL
4. RECENT SCRUTINY OF CEO’S
5. TAINTED PUBLIC PERCEPTION OF CEOS
6. SHARP RISE IN CEO PAY OVER TIME
7. HOW MUCH IS THE AVERAGE CEO REALLY PAID
8. HIGH PAY IS JUST ONE OF THE PERKS OF BEING CEO
9. CONCLUSION
REFERENCE LIST
1. Matthew W (2016) How should you set executive pay? Retrieved from : http://www.bbc.co.uk/news/business-35238299
2. Shana L (2016) Are CEO’s overpaid? Retrieved from: https://www.gsb.stanford.edu/insights/are-ceos-overpaid
3. Lawrence M, Alyssa D (2015) Top CEO’s make 300 times more than typical workers Retrieved from: http://www.epi.org/publication/top-ceos-make-300-times-more-than-workers-pay-growth-surpasses-market-gains-and-the-rest-of-the-0-1-percent/
4. Adam H (2015) why CEO’s make so much money Retrieved from:
http://www.forbes.com/sites/adamhartung/2015/06/22/why-ceos-make-so-much-money/#8eb67c212a3f