Ceos Being Paid Too Much Money Is A Bad Thing

Initially, the question as to whether or not CEOs are paid too much may seem to be a matter of subjective opinion. However, research indicates that pay disparity beyond a certain ratio can lead to adverse implications in society. According to one source, income inequality creates problems in all economies. Income and social inequality bring hardship to the less well-off while simultaneously enabling the conditions for those in positions of power to further enhance their wealth (Tsui et al. 156).

With this in mind, the eminent Peter Drucker previously suggested that an earnings differential ratio in excess of 20:1 between CEOs and their subordinates should not be surpassed. Doing so would most likely lead to conditions of employee dissatisfaction and resentment (qtd. in Gavett). Furthermore, Kiatpongsan and Norton convey that when asked about the pay gap between CEOs and unskilled workers, respondents from 40 different countries expressed an ideal pay differential of 4.6:1, with the estimated pay differential more than double that at 10:1 (qtd. in Gavett).

Unfortunately, these figures are completely unrealistic as CEO earnings are well in excess of what average workers deem acceptable or expected. Data available for each of the countries surveyed show that in every case, CEO earnings are greater than citizens would like them to be (Gavett).

In certain countries, such as the United States, the differential is alarming. According to the aforementioned research from 2014, citizens of the United States presume that the pay differential of CEOs to average workers was approximately 30:1. In reality, the ratio was closer to 354:1 (Kiatpongsan and Norton 2014).

As the world’s leading economy, this disparity between people’s expectations and the reality of CEO remuneration deserves further scrutiny. While a pay differential ratio of 354:1 seems extraordinary, it was not always the case. For example, the corresponding ratio from 1965 was a mere 20:1. Based on a stock-options-realisation calculation, where CEOs profit from the sale of shares granted as part of their remuneration package, CEO remuneration increased by 1,070 percent between 1978 and 2017. Meanwhile, the value of the S&P 500 rose by only 637 percent over the same period, with average employee wages increasing at a rate of only 11.2 percent. For the highest paid non-CEO wage earners, those in the top 0.1 percent of wage earners, the same time period delivered a 308 percent increase in wages (Mishel). These figures suggest that the hyperinflation of CEO remuneration relative to other high earners and stock market valuations has less to do with the demand for skills or industrial output. Instead, it is a reflection of CEOs ability to “extract concessions” (Mishel). Therefore, based on the facts, one can easily arrive at the objective opinion that yes, CEOs are indeed paid too much.