The large gap between the size of the employees’ salaries and those of the executives and CEO has been the issue of discussion for years. The debates become especially heated and passionate in times of financial crises when the employees are in distress, and their salaries stop matching their everyday financial needs.
In 2015, U. S. Securities and Exchange Commission have established a new rule according to which all the publically held corporations are obliged to disclose their levels of executive compensation along with the median pay of the employees (Hoppmann, 2015). In theory, the ratio between the two numbers is to indicate which companies have the tendency towards income inequality. However, there is no official data as to what difference does it take for the company to become judged for lack of equity.
The salaries of the CEOs are extremely high compared to those of the workers. The gap is determined by the fact that the executives are in charge of their own payment (all they need is to convince the board to agree to a certain salary for them) levels whereas the employees are limited by the company regulations (Lawler, 2009).
The main argument supporting the higher salaries for the executives is the fact that they are in a tight dependency on the market forces (Hoppmann, 2015). In other words, the high payments of the executives reflect the value of their talent that is rather rare. From the point of view of the workers, the CEOs of the companies may seem as people who do not have many duties and therefore, do not deserve such high salaries. However, once a high-standing executive leaves for a vacation, the company begins to face serious challenges in terms of management and important decisions. At the same time, when a worker who is at the bottom of the organizational hierarchy leaves for a vacation, the company is unlikely to experience any serious skills shortage. That way, the value of an executive corresponds to the level of their compensation.
The primary argument against the excessive payment for the CEOs concerns with the influence the executives have over the process of payment control. In other words, the individuals who are responsible for the establishment of the CEO’s payment (the board members) are hired by the CEO as the head of the board. That way, it becomes impossible to manage and limit the salary of the CEO for anyone regardless of their position in an organization. Basically, the executives name their own price once they are hired.
One aspect that regulates the value of the CEOs is the performance they demonstrated in the past while occupying other positions or being in charge of other companies. The executives are selected by the organization based on the level of their professionalism. That way, the board of directors can anticipate the approximate value and salary of the executive and use this assumption as the basis for the decision whether or not they should invite a particular professional as a CEO of the organization.
To sum up, the argument concerning the excessive compensation of the executives is complicated by the fact that the arguments pro and against are intertwined – the level of the CEOs’ salaries reflects their value for the companies, however, when this value in the form of a salary becomes excessive, it starts to devale the other employees and cause a disruption in the organization, so the leader who was hired to bring the company forward begins to drag it down.
References
Hoppmann, B. (2015). When it comes to CEO pay, how much is too much? Web.
Lawler, E. E. (2009). Fixing Executive Compensation Excesses. Web.