CEOs wide spread belief is the name of


CEOs
are paid very much just face criticism. But, giving one person more money than
he can ever spend on anything worthwhile for himself or his family, while
thousands of employees working with him struggle and suffer to earn a living
just seems to be wrong. Even though CEOs are paid a lot of money, they are paid
much lesser for more productive work. CEOs are the caretaker of all
shareholders, employees and others relating to the company, so their pay is
acceptable. The widely held belief is that CEOs are paid a lot because most of
the time their compensation runs into billions, while the average worker
working with him is paid only a little fraction of that amount. Executives are
actually impartially compensated, given the possibilities for expanding their
responsibilities and the highly competitive talent at the top6.

There
are only few people who have unique talents and the free market that decides
their worth every year. Likewise, there are handfuls of people who are capable
of leading major multinational companies with more than hundred thousand
employees. But those who are really capable are very short in supply and high
in demand. Twenty
years ago, a citizen might not know the name of a fortune 500
CEO, but the wide spread belief is the name of the institution—and made an
assumption that only the CEOs are responsible towards this reputation . Two
things have changed that: it is much easier than before for people to
distinguish between the CEO and institution separately and there has been a huge
decrease in respect for the institutions themselves3.  These
unique talents create more than just value to the institution. CEOs create
thousands of jobs for the workers and deliver lifetime worth of money to the
investors. In large multinational corporations, usually the budgets are
relatively high. CEOs pay shouldn’t just be judged against any predetermined
benchmarks. It should be compared with all of the company’s spending on its day
to activities and the rate of return they generate from that expenditure. CEOs
are the head of the institution and there is no one above them to weigh or
judge their performances, so they can easily influence their income than any
other workers in the institution. CEOs are like kings. They aren’t elected to their position;
they are selected from the pool of competitive CEOs. It takes usually several
years of hard work to reach that position. Once in the position, they pretty
much decide their own pay2.

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On the other hand, just paying
CEO more money than he can never spend on anything worthwhile for himself or
his family, while thousands of employees working with him struggle and suffer
to earn a living just seems to be wrong. The idea of huge CEO pay is unfair. It indicates
that CEOs are rewarded relatively too large at the expenses of other workers.
CEOs aren’t punished or rewarded less for their poor performance because their
salary and bonus are fixed even though the institution’s value may fall which
will eventually result in low payment of workers4. The widely held belief is that it is largely
the result of a positive stock market and also according to a large majority of
shareholders, those who doesn’t wish to lose their money because of
underperforming executives, accepts on how much ever their companies’ CEOs wish
to make5. A good and capable CEO is worth a lot to a company and its
shareholders and a bad one can destroy a lot of value. So, the CEO must be compensation
increase only according to the criteria of “pay for performance”. This means
that the CEO is to be paid more only if the company’s value increased or if
there is an abnormal profit for the shareholder of the company.

To recruit and retain top talents, the compensation must be
competitive. CEOs are the highly paid worker in a company. Generally their pay
is 300 to 400 times the average pay of the workers. CEOs provide a adequate degree of talent that is
needed to produce the desired product – in this case, a strongly performing
company. A good CEO must possess the higher degree of skills that is very much
needed for the development of a company in the long run. Only about 20 percent
of a CEO’s pay is base salary; the rest includes that of incentives and bonuses
based on the company’s performance. The widely held belief is that if the
company is performing well and the shareholders are receiving more than what
they intended to get, the CEOs should also share this success7. In some
cases, CEO compensation might be an indicator to judge the company’s
performance. So, the compensation paid to CEO should be higher in this case.
One of the main reasons for ever increasing CEO pay is the process of
benchmarking. Benchmarking is the process of evaluating the performance to a
predetermined standard. In other words, every time a CEO gets benchmarked, he
sets a higher baseline of compensation for the next time for any leader who
comes to his position8.

 

The top executive of any organization is ultimately
responsible for the development of institution as well as in the growth of
share value on the perspective of its shareholders. Shareholder wants an ever
increasing growth in the dividends which is their form of income from their
investment. Employees need an encouraging atmosphere from which they can
develop high level of skill which can be helpful for them to be competitive
among the other workers.  From the outside perspective, the CEO is the public
face of the firm on a large scale, representing the institution in all form of mediums
in use in our world9. So, the amount of cash and compensation paid to CEOs might look
very large when compared to that of average employees; it is actually not what
it seems. Executive compensation is increased, when there is an abnormal profit
in company’s share market when the share price appreciates like never before. The
main reason CEOs are compensate more is that a
talented CEO worth a lot to a institution and its shareholders and a bad one
can destroy a lot of value. Only Individual investors can understand this
dynamic. 

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