A chief executive officer is the highest ranking officer in a company. As part of his responsibilities he makes final corporate decisions, manages overall business operation that include company finance, resources and communication between board of directors, shareholders and employees. The high pay might seem very much justified with the role and responsibilities a CEO might have. A CEO plays a role of a team leader, and having a leader who is great at team building is essential. CEO is a strategic planner, in any sector businesses are competing against each other, and a CEO makes sure his company comes out at top. Moreover a CEO interacts with board of directors and looks after interest of company stakeholders. So with so many critical responsibilities it is perfectly understandable why CEO’s pay is sky high. But given the fact that CEO pay and average company pay currently stands at 300 to 1 currently is not really motivating fact for employees
Keywords: ceo pay, income inequality
Gap between CEO salaries and average employee pay
Is it ethical for CEOs to be paid so much more than other employees?
It might not be ethical for CEOs to take a huge pay check, as one of the responsibility CEO has to motivate and inspire each and every employee. And an average employee with average pay check might not feel that CEO getting a huge pay check is fair since all the execution is done at ground level. Higher CEO pay demotivates average employee (Seymour, 2016) and CEOs action that demotivates employees is unethical.
Does this practice use a valid reward distribution system?
Given the scenario a company doing extremely well sales and profit wise, a CEO gets a fat pay check, and it is true that CEO motivates and drives the team or the employees to get the success, so she / he deserves recognition. But it is also true that if CEO pay is 300 times of average employee pay (Mackey, 2009) then one average employee might think that his / her work is insignificant and she / he might lose motivation. A CEOs success is very much dependent on each and every employee’s success. And it is crucial that each employees gives 100% to attain success in competitive market. So this reward distribution system is flawed.
Should companies be considering ways to reduce the gap to improve the overall moral of their employees?
The companies should look for a way to reduce the pay gap, and that might mean reducing the CEOs salary, because it might not be possible to increase the pay for each employee. We know that a CEO runs the company and motivates employees. And each productive and successful employee makes CEOs / company’s success a reality. And one of the responsibility CEO has is to motivate each employee and help the company succeed, if that means reducing own pay check, so that is only way to go. The employees might not feel insignificant and if they see CEO taking a pay cut, employees would realize how criticality of being a team player, that might act as a motivator. Now the question is what a company can do to reduce the pay gap? Reducing the pay of CEO is a simple solution but that might not be considered as win – win solution, as a CEO might walk away with a bigger pay check. A company can consider stock or equity options for all employees including CEO as variable pay. In that was a higher stock price would benefit each employee. But this option might not work out that well in a huge organization. In those organizations CEO’s salary can be capped like it was in Whole Foods (Mackey, 2009). So, CEO’s salary can up as long as employee average salary goes up, that way employees will work for their own pay check and CEO can benefit from the success of the team too.
Do you think CEO and upper management salaries are subject to ethical consideration?
One cannot deny that a paycheck is a huge motivator. And CEO as an individual might follow the money, join a company that offers a bigger pay. But there is another fact that demotivated employees are bound to leave eventually or they would be less productive. And if employees keep on leaving that will increase the cost of hiring, training and company will lose productive days resulting company lose more money. A less productive employee is no better, company loses money there too. So it is always wise to keep you team and keep them motivated to be successful. Above all the responsibilities one CEO has, the most critical is to maximize sales and profit for shareholders. And a company that offers low job satisfaction is not very popular among employees. So if employees do not want to stay or come to the company that means the COE would fail miserably eventually. As John Mackey pointed out employees really do care about the income inequality and pay gap between average employee and CEO (Mackey, 2009), it should be management’s responsibility address the issue that has any negative impact on workforce, so that company can retain better performing resources and build a loyalty. If after being aware of this issue the management decides to leave it on the external equity market and do nothing, then that would be unfair to the employees and unethical.
Mackey, J. (2009, April). Why Sky-High CEO Pay Is Bad Business. Retrieved from https://hbr.org/2009/06/why-high-ceo-pay-is-bad-business
Seymour, K B. (2016, January). High CEO pay demotivates employees. Retrieved from https://www.professionalpensions.com/professional-pensions/news/2443461/high-ceo-pay-demotivates-employees