With greater power comes greater responsibility and greater accountability – and greater compensation.
Chief executive officers (CEO) bear the responsibility for making decisions that affect the company’s current and future. And they should be paid according to their level of responsibility and accountability.
But the pay discrepancy between the executives and employees is increasing. Wages are stagnating and executives seem to be negotiating better and better compensation packages for themselves, as they become responsible for larger and more complex organizations.
This can make CEOs far-removed from the effects of their policies and corporate strategies. It can increase feelings of entitlement and privilege.
The median CEO salary was 140 times more than the median employee salary, according to an Equilar anonymous survey of 356 public companies that identified the CEO Pay Ratio they plan to report in their 2018 proxy statements. Among S&P 500 companies, the difference in CEO compensation is even more staggering. In 2017, the average CEO of an S&P 500 Index company made 361 times more money than the average U.S. rank-and-file worker, according to the AFL-CIO Executive Paywatch.
In Hawaii, the differences in compensation are smaller than the national median, and vary widely according to size and industry, according to a Civil Beat report by Anita Hofschneider, “Here’s How Much Hawaii CEOs Make Compared to Their Employees” (6/4/2018). CEO salaries at local companies ranged from 17-times to 83-times median employee salaries, but the comparisons “include part-time and temporary workers along with full-time staff and also take into account benefits like stock awards on top of base incomes.”
What if the top executives voluntarily agreed to limit their compensation? They could agree to accept a salary that is at most 20-times the average salary of their full-time employees, or at most 30-times the salary of their lowest-paid full-time employees.
So if the median salary for full-time employees is $50,000, CEOs would earn at most $1,000,000. Or if the starting salary for full-time employees is $35,000, CEOs would earn at most $700,000 per year.
And not just salaries. CEOs would receive the same health insurance, vacation, and professional development/education options. But that 20-times limit would include compensation packages, such as stock options, retirement benefits, housing allowances, and guaranteed payments in mergers or take-overs (golden parachutes). They would receive no more than 20-times what the average full-time employee would receive.
I think this would have a positive effect on company morale and loyalty. It could affirm their commitment to the work and values of the company, not just to a paycheck. It could demonstrate their confidence in the decisions they make and a willingness to be accountable for their mistakes. (Not that mistakes should be punished, but that the company can learn from those mistakes). It could motivate executives to raise the wages and benefits for all employees.
Businesses are not created to benefit a select few. Businesses provide services, provide employment and experience, and yes, make a profit. And they can do all of that while making families and communities a little better.
If we “need” such high CEO compensation, maybe our organizations are too complex. Or maybe we are requiring too much of our executives.
Are CEOs worth what they pay for? How much is too much compensation for a top executive? If you are or became a CEO, would you take a 20-times pledge?