Are CEOs Paid What They Are Worth?

CEO salary and compensation has increased 725 percent since 1978.

CEO salary and compensation has increased 725 percent since 1978.

A chief executive officer is the top executive responsible for a firm's overall operations and performance. CEOs are generally held responsible for the success or failure of their firms. CEO salaries vary; some major corporations pay their CEOs millions of dollars in pay and other compensation as well as many perks. There is much debate about whether or not a typical CEO is actually worth what he or she is paid.

CEOs and Salary

According to Forbes, the average total compensation of a U.S. chief executive officer in 2012 was to $10.5 million. The highest-paid CEOs in the U.S. are in the drugs and biotechnology industry, at a total average compensation of $18.3 million. U.S. utility company chief executive officers were the lowest-paid CEOs in 2012, at $6.1 million average total compensation. The pay of a CEO can be impressive, especially when compared to that of a rank-and-file worker's salary.

CEOs and Worth

The question of whether a company's CEO is worth what she's paid is frequently related to issues of fairness. Many of America's labor unions believe that most CEOs are overpaid for what they do. By contrast, other organizations have argued there's no simple way to determine whether a CEO's pay is "fair" or if he's "overpaid." A CEO who helps a company make a $1 billion profit might be worth the $10 million salary, at least to the company's board of directors.

CEOs Are Overpaid

Those who believe that CEOs aren't worth what they're paid say many CEOs are no more than high-level managers. Though they may be highly skilled, CEOs are in the business of management and nothing more. Most CEOs don't invent products, goods or services, and thus the high level of compensation they earn isn't justified by their contributions to their companies. With CEO pay hundreds of times more than the average worker, compensation does seem excessive.

CEOs Are Underpaid

A 2012 CNBC article states good reasons for why CEOs are worth what they're paid. The labor market for a skilled and successful CEO is a market - and companies compete for top talent in that market. A CEO who can define the strategic vision and operations for a company, thus generating profits and shareholder wealth, may actually be underpaid. CEOs who successfully manage their companies' operations and consistently deliver year-over-year growth may be worth every penny they're paid.

Making a Decision

It's difficult to justify CEO pay hundreds of times as much as the average U.S. worker's. Excessive CEO-to-worker pay ratios can sow internal dissent in companies, causing rank-and-file workers to lose trust in their leaders. Financial writer Dan Burrows of the InvestorPlace.com believes CEOs aren't worth what they're paid no matter what yardstick or measure is applied. CEO compensation has increased 725 percent since 1978 although performance hasn't, meaning CEOs are probably being paid more than they're worth.

 

About the Author

Tony Guerra served more than 20 years in the U.S. Navy. He also spent seven years as an airline operations manager. Guerra is a former realtor, real-estate salesperson, associate broker and real-estate education instructor. He holds a master's degree in management and a bachelor's degree in interdisciplinary studies.

Photo Credits

  • Jupiterimages/Photos.com/Getty Images