Do I believe most CEO's in the US companies are overpaid versus how they perform – Research Paper Example
Do I believe most CEOs in the US companies are overpaid versus how they perform? I am worried by the fact that CEOs make between 350 to 1,000 times the average salaries of an employee. I find the idea of paying CEOs very huge amounts of salary a repulsive act since their performance does not coincide with their humongous salaries they acquire. The idea in my opinion breaks the principles that America was founded upon (Joshua 12). I believe that the guideline of ensuring domestic tranquillity and promoting general liberty is also largely violated. Most CEOs are overpaid in the USA; this is a result of selfish and corrupt corporate deals. The worst thing is that while the average worker receives meagre payments, the CEOs are paid enormous bonuses and wages, and is under an umbrella clause.
A survey conducted by the business week indicated that in 1980 a CEO in a major corporation earned about 42 times more than the average worker (Stendhal 34). Surprisingly enough the figure by 1980 had escalated to up to 85 times. The figure was an imaginable reaching up to 531 times in 2000 (Steven 9). Recently the aspect of pay for performance has started being critically analyzed by several corporations. The move aims at binding compensation with financial success of a company. Most CEOs presume that their talent is the cause of the marvellous appreciation of the value of a company, which is not the case.
In my opinion, CEOs are overpaid and the move has very little effect on the CEOs performance. The salary has no quantifiable result on the performance of the company they head (Marianne 22). The only measurable impact that is evident is the ever-increasing gaps between the workers who are depend upon to provide result and the so-called CEOs. Management professionals should intervene to handle the situation and bring equity on matters of compensation for both sides. Respect and trust can still be salvaged between the individual contributors and the upper management. I predict that if an immediate action is not taken then resultant motivation and worker motivation will plummet.
The human resource department, on the other hand, fights back and defends the escalating pay packages belonging to the senior executives. The department explains that the move is intended to compensate and avoid the risk of an outsider CEO being brought in to handle an operation that is in jeopardy (Joshua 23). An outside CEO according to the department could bring widespread chaos to the organization. Paying the current CEOs high salaries is just to them. I tend to agree with the fact that new CEO’s lay off older team members and bring in their new members who they presume to be more reliable. Their aim is to bring in new ideas, energy and innovation, but the move has multiple ripple effects. The biggest effect is on the erosion of the successor bench power.
The move opens doors for more trouble where the new team needs approximately one year to develop a strategic plan and another year to confirm if it will work. Rapid results will be expected especially from huge shareholders such as pension funds therefore a further move to fire older second tier managers and recruit new ones (Stendhal 18). Therefore, the department or board will hold on to the CEO they hired to avoid all these problems as long as they trust the individual. Due to fear of losing the human resource, they cave in to the demands the CEO makes such as a demand for a humongous salary.
Avoiding the situation where the salary of a CEO’s is almost unreasonable when compared with that of an average worker requires the board aiming at promoting internal candidates as a tactic to handle the situation (Joshua 44). The salary of a newly promoted senior executive is more likely to be realistic than that of a newly brought in CEOs from a different company. I believe the board should also avoid treating the CEOs as a saviour or a supreme being but should focus on developing and learning the individual’s performance curve (Stendhal 23). The move is essential for corporate survival. I am sure the promotion of internal candidates is the ultimate solution to the problem of overpayment. Internal candidates will appreciate the figure or amount of salary that the board will offer no matter the wage since a promotion is an automatic indication that an individual’s work is being appreciated. Their overall performance also seems to take an upward trend since they had to prove they are fit for the task.
I believe the issue of wage imbalance is detrimental to the welfare of the society and progress. Over paying CEOs is no longer just since their performance and results do not match with their huge salaries. Technologists, nurses, cooks, doctors, teachers, and other professionals who are hard-working ensure the human race progresses well every day. I also believe CEOs deserve a higher salary than these professions but not a by a figure that is disproportionate. A difference that is not only demoralizing but also repulsive to the rest of the majority of the populace should not be allowed. There is, therefore, need to share the wealth accumulated across the board for real progress to be noted.
Joshua, Rauh Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes? New York: Rockport Publishers, 2011. Print.
Marianne, Bertrand. CEOs’ Annual Review of Economics. London: University of London Press, 2009. Print.
Stendhal, Mullainathan, Agents with and without Principals, .New York: American Economic Review Expert Press, 2008. Print
Steven, Neil. Are US CEOs Overpaid? Academy of Management Perspectives. Washington: Government printing office, 2010. Print.