Compensation is the amount paid to the employees for the services they provide to the company. An article written by Shellie Karabell in Forbes magazine is regarding the compensation paid to the CEO’s is not under the control of the company. The report focuses on the fact that the ratio is increasing in most of the developed countries like America, Hongkong, Spain, Germany, UK, Canada and in Singapore. Paper examines if paying highly to the CEO’s increases the efficiency of the company, or Paying high to the CEO’s will get the company to the top.
The article begins with the question that why companies have to pay so much to their CEO’s. CEO’s are the one who makes policies and let those policies travel down to every employee that is working in the organizations. If the plans made by them are correct company will prosper, if not, it will not. Every company tries to be at the top of the particular industry in which it is operating. There is a significant gap between the wages of the CEO’s and in the salaries of the employees. We call this gap as a wage gap. Now wage gap is more closely associated with the Gender gap. It means the wage difference between Men and Women. It has been observed mostly that Men as a CEO of the company has been provided with higher wages than women.
In this modern era, there’s every negative aspect associated with any program or product or anything that is coming into the society or in the market. A negative point like demoralization. The sense of community that organization needs the most. High pays have destroyed this sense. Senesce of confusion will come in the minds of other workers who work in the company. They might think that their wage should also be increased of whatever they are getting currently. In 1965, a management guru, Peter Drucker told that the ratio between the ays of the CEO’s and in the pays of the employees is 20 to 1. This means that CEO will get the pay that is 20 times more than the salary of the worker. All the hard work that is done by the workers or the employees and still not getting enough pay will create a sense of demotivation because in the end money matters. It does not matter how good the environment is how well the organization structure. Things that matters is money. It can be said that money is the one that matters most and motivates the worker to work for his betterment.
One of the reports published by the Economic Policy Institute regarding the top management pay explains how drastically the salaries of CEO’s have increased over the years. That shows that in different years the ratios have coming up and down like in 1995 the rate was 123 to 1, that means that CEO was getting pay that was 123 times more than the wage of a typical worker in the organization. Likewise in 1989, the ratio was 59 to 1, in 1978, the ratio was 30 to 1, and in 1965, the rate was 20 to 1. Drucker presented the last ratio. From the report, it was estimated that the pays of the CEO’s were continually increasing on a yearly basis with the high percentage like it as said that it got raised to 937 percent which is a considerable percentage. Now the question arises why companies pay so much to the CEOs. The answer to the question could be because they are the one who has to ensure that company operates efficiently and effectively in the respective industry. CEO’s are the ones who establish strategies and their strategies are essential to earning profits. These could be reasons to pay them so much. This is maybe the positive side, but there is negative side as well. High pays of the CEO’s ake the employees dissatisfied with the company because they are not getting that much money so that they can feel motivated. Apparently, the company cannot pay that much amount to every employee like what they are paying to the CEOs, but a handsome amount can be paid to ensure some balance between them.
Another problem that is mentioned in the article is there is a difference in the CEO of the same companies in different companies. It has been said in the article that CEO’s of the publicly traded companies of the USA in the USA are getting more pay then the CEO of the same company operating in Canada. This gap is, even more, wider for other companies that are headquartered in America and have same companies working in other countries. One of the statements made by the leadership professor at the INSEAD, which is one of the best business schools in Fountainbleau that the pays given to the CEO’s, in fact, the one day wage of the CEO’s are more than the average salary of the worker that he makes in an entire year. Another professor has supported this by making a statement that this is one of the useful ways of a capitalist country. In short, this is one of the forms of capitalism. But along with the positive aspects of capitalism are present, negative aspects of the capitalism are also there, which affects directly on eth society. In terms f creativity and innovation in the products or services of the company, he, the professor, has given low marks by comparing the pays of the CEO’s and average employees which has the most significant negative impact on the average employee’s moral.
Two myths are presented in the article that justifies why CEO’s should be paid higher than, an average employee. First myth explains that CEO’s hud gets high pay so that they stay motivated in the company and work harder to achieve the company goals. Now if one goes into the reality, this is not the case. Those CEO’s who are high achieving will work anyway either they are paid high or paid less than that. In this era, people who are achievers are those who play a top game in the corporate sector. It’s not entirely accurate that money is the motivation, recognition and being praised in front of the world or the company are kind of motivation for most of the people. We are talking about CEO’s, not an average employee working in an organization. This is a reality of the world; the myth does not prevail in the society. The author has said that if a company cuts out some part of the pay of the CEO, according to him if the CEO is an achiever this will not have an adverse impact on his or her performance. He will work hard like he used to do in the past (Karabell).
Second myth explains that paying high to the CEO’s demonstrate market demands of the skills they possess in the bottom line. Now author believes that CEO’s does possess excellent skills but with low leadership skills. They do not have enough leadership skills that other people have. There is a likelihood that the manager of the same company has more leadership skill than the CEO, but that doesn;y mean that company should pay him with high amounts because of the senior leadership skills possessed by him. If there’s more of those skills available in the market, this will automatically reduce down the pays of the CEO. CEO’s like Steve Jobs and Bill Gates, these are exceptional cases, there may be people like them, but it is scarce to find such leadership skills in this era. Now the question that comes to mind is how to make a proper balance in this situation. It is highly injustice to just fire the CEO. No. but imposing high tax rates according to their pays will create a high impact. This could be one of the suggestion to make a proper balance. Another idea would be to pay CEO’s according to the profitability and the operations of the company, more importantly keeping in view the employees of the company. If a company is paying more to the CEO’s, it should make a balance between CEO’s and other employees, increase their pays as well. This will not demotivate other employees.
Form the above discussion it is clear that paying high to the CEO’s is not the way that will lead the company to the top. But it will surely demotivate other employees and will demoralize them as well. There should be a proper balance between the pays of the CEO’s, and the pays company gives to other employees. If government introduce a corporate tax rate that is applied to the firms that have high CEO to Worker compensation ratio. This would be one good move that any government will make. With the help of this corporate tax, a proper balance between the wages of CEO’s and workers can be maintained.
Karabell, Shellie. Executive Compensation Is Out Of Control. What Now? 2018, https://www.forbes.com/sites/shelliekarabell/2018/02/14/executive-compensation-is-out-of-control-what-now/#2e524e43431f.