You know that CEOs make a lot of money, and that they are an important component of organizational leadership. However, the recent economic downturn saw some organizations take government bailouts at taxpayer expense, lay off employees, and still give large bonuses to shareholders and/or CEOs.The question is: are they worth it? Look at the O*net profile for chief executives (Use those words in an occupation keyword search) to inform your answers to the following questions:(1) Are CEOs paid too much, or are they worth the high compensation packages they receive?Answer : CEO’s are more than worth the high compensation packages they receive from their companies. The primary reason being their worth is a culmination of years of educational industrial, corporate and market experience.
They’ve worked in the finest firms , seen their previous companies through some of the most diverse and complex economical cycles. A very small fraction of professionals have maintained such consistency in their careers to reach those levels of professionalism. The fact still remains that they opportunity cost that CEO’s have paid is extremely high. This experience helps them gauge the outcome of a business decision far before implementation which is extremely crucial in business. The second argument for CEO compensation is that the level of compensation is proportion to the market rates of what other firms are willing to pay and the free markets are extremely efficient in deciding prices. Which means that the compensation of CEO’s is upto the mark The third argument is that even if the salary of a CEO who earns 20 $ Million and employees 2 million people like walmart was cut to zero then we just gave each employee 10 $, Thats a negligible difference. On the contrary the upside of compensation is the incentive to take a risk and to build a company as large as Walmart that employees over 2 million people. (2) Is it ethical or fair that a CEO receives a bonus when employees are being laid off or having their benefits reduced?Answer : The answer to the question lies in the underlying reason for the layoff and the reduction in bonuses.
If the reason for the layoffs is a lack of business performance then its unjustified for a CEO to receive bonuses while layoff are underway. However if the reason for the layoffs is poor employee performance or job roles that are no longer relevant in the organisation today then it has nothing to do with the over all financial performance of the company. The fact of the matter is that layoff happen all the time and across all companies. the magnitude and the reasons for the layoff are what matter. As far as benefits go organisations already make major government mandated contributions to their employee’s benefits. The purpose of the federal Affordable Care Act (ACA) regulation also known by its nick name Obama Care, was to cover low income families with health or medical insurance that is more comprehensive in nature and more inclusive in nature by covering an additional 20 – 21 million American Citizens to the government health care plan.
The affordable care act also requirers employer’s to make contribution towards the employee’s health care costs.So unless its a major benefit restructuring that adversely effects the employees to a level where they feel the need to unionise or file a class action law suite or express their dissatisfaction to the organisation in large numbers, this does not call for the CEO’s bonuses to be cut. (3) Does high compensation for CEOs actually increase company performance?Answer : As i mentioned before CEO compensation is determined by the free markets. The level of compensation is proportion to the market rates of what other firms are willing to pay and the free markets are extremely efficient in deciding prices. Which means that the compensation of CEO’s is upto the mark.
Which means that the better the CEO the higher his market rate in the job market. These are fundamental economic principles that stand the strength of time Source / Citation FORBES (the website)CEO’a are paid a lot because they’re worth a lot TIM WORSTALL