Ceo's Paid Too Much

Topics: Chief executive officer, Corporate governance, Executive compensation Pages: 14 (5414 words) Published: November 4, 2012


This paper explores the salary of CEOs which is being paid too much. The writer of Reader’s Digest, (Crowley, 2005) wrote an article and stated that Stephan Crawford, A CEO of a company in US, quit during a “management shake-up” and “strolled off with a severance package which included two year’s salary and bonus,” which amounted to $32 milion. He also pointed out that “Crawford pulled in 54,000 dollars per hour into his pocket!” which is a huge amount of money. However, (Kaplan, 2007) argued that there can be absolutely no doubt that the typical CEO in the United States is paid for performance and suggested that CEOs may not be overpaid but in fact, may be underpaid. In a May 2009 paper, Gabaix and three co-authors propose one possible solution for improving incentive structures where they suggest awarding executive pay through “dynamic incentive accounts.” Keywords: CEOs, CEOs paid too much


A chief executive officer (CEO, US English), managing director (MD, UK English), or chief executive is the highest-ranking corporate officer or administrator in charge of total management of an organization. HarperBusiness author, (Drucker, 2005) proposes a definition of the CEO by saying that the CEO is the link between the Inside, for example “the organization”, and the Outside which are society, the economy, technology, markets, customers, the media and public opinion. Meanwhile, salary brings the meaning of a fixed compensation periodically paid to a person for regular work or services from the employers to the employees. Then we also need to distinguish wealth from income and income is what people earn from work, but also from dividends, interest, and any rents or royalties that are paid to them on the properties they own. So in theory, those who own a great deal of wealth, but in reality those who are at the very top of the wealth distribution usually have the most income. (Norris, 2010) stated that most of the rich people’s income does not come from working. He explained that in the year 2008, only 19% of the income reported by the 13,480 individuals or families making over 10 million dollars came from wages and salaries. First of all, the writer of Reader’s Digest, (Crowley, 2005) has displayed precious little knowledge of economics, and at times his complaints were also downright contradictory. So, his article begins with the anecdote about Stephan Crawford and also then the co-president of Morgan Stanley. He stated that Crawford quit during a “management shake-up” and then “strolled off” with a severance package that included his two year’s salary and also bonus where all of them amounted to 32 million dollars just a few months after accepting a promotion from the company. Then Crowley pointed out that “Crawford pulled in 54,000 dollars per hour into his pocket!” which is a huge amount of money in order to make sure that his readers are sufficiently outraged. (Murphy, 2006) then explained that if a person wants to show how much more the CEOs get paid, and of course all of them do get paid far, far more than some other average workers that work in the companies, then a fairer comparison would have been the mean annual earnings of the average workers versus the mean annual earnings of the CEOs. Then later (Crowley, 2005) came out with a report by following this more reasonable route and reported that in the year of 2003, CEOs were paid over 300 times what the average production worker made. (Murphy, 2006) also gave an example like Crawford rigs the comparison by saying that one could certainly find some cases of average Joes who quit or were laid off after working for a very short period of time, and hence whose “hourly earnings” would appear vastly inflated. So using Crowley’s approach, (Murphy, 2006) argued and showed that some Irish workers are paid six times more per hour than the median temp worker. Even on its very own term, the...
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