Ceo Compensation

High CEO Compensation - Justified or Not?

According to a study conducted in the US in 1960, the average compensation package of a CEO of a middle-sized company was double the salary ($100,000) of the then President, Kennedy. In 1970, the CEO's salary rose to three times the salary of President Nixon and by 2001, the average CEO compensation was 31 times more than the salary of President Bush ($400,000).

According to media reports, by 2001, the average salary of a CEO in the US had increased by an incredible 1,996% since the 1980s, while the average salary of a factory worker had increased only by 66%. | |

During the years 1990 to 2001, CEOs' average compensation had increased by 463%, as compared to an average worker's salary which went up only by 42% (Refer Table II). The reports revealed that the gap between the salaries of a CEO and an ordinary factory worker was very wide, and was expected to widen further in the coming years...

The Debate IntensifiesThe global economic slump during the beginning of the 21st century further intensified the debate on high CEO compensation. Analysts felt that while corporate revenues and net profits were declining, and share prices falling, there was no reason why CEOs should get a raise in their compensation. According to a study conducted by Forbes in 2002 for non-US based companies, seventeen specific instances were reported where a CEO got a raise in compensation in spite of falling stock prices and lower net incomes (Refer Table IV). |

Analysts thought that paying high compensation to CEOs especially during a boom in the economy was not a right decision. They argued that the high profits and good performance of the stocks of a company during the boom resulted from the environmental and other macro-economic variables, over which a CEO had no control...

(*****

We are a market economy, and by rule of supply and demand, the market will pay a premium for valued commodities (in this case, a human resource). It is not...