Do CEOs Earn too Much?

looks at the ethics and the facts behind executive pay

Photo Credit: Wikimedia

Photo Credit: Wikimedia

Last year American CEOs earned $11.7 million dollars on average, 331 times that of the average worker. The use of the term ‘earned’ is controversial however. It’s possible to explain high salaries for a variety of reasons. CEOs may have invested a large quantity of time and efforts to get where they are today. They may have taken a variety of risks that have paid off. It may sometimes be that they were simply in the right place at the right time, but holding a grudge against that would be like holding a grudge against lottery winners. Even if they were lucky to get where they are, CEOs need a great deal of skill to stay at the top.

The idea of being a multi-millionaire is an appealing incentive for masses to strive and contribute to industries and potentially even society so as to reap the rewards. It’s not the relativities that always matters. In the United Kingdom, the CEO can stand to earn £2.35 million a year whilst the average worker will make 1/84 of that amount. The average worker makes around £28,000 a year.

In a study by Sorapop Kiatpongsan and Michael Norton, ‘How Much Should CEOs make?’, it was revealed that in the UK there was consensus that CEOs should make 5.3 times the amount of the average worker. The sample from which that consensus was drawn believed that CEOs make around 14 times the amount. So at 84 times the amount there seems to be an extreme discrepancy in not just what people think is justified but what they’re actually getting.

Whilst the top 50 CEOs earn millions each, collectively they generate billions in profits. They also pay a hefty amount in tax which will be reallocated into society at the government’s discretion. Additionally, only a fifth of a CEO’s salary tends to be base pay, whilst the rest is performance-based. These facts add up to suggest that the salaries aren’t entirely out of keeping.

One of the main bites to the issue is the millions of workers who aren’t earning enough to live a decent standard quality of life. Many put in the work and still don’t earn the living wage through a variety of contextual circumstances. As Harvard philosopher Michael Sandel notes, we can’t help how we are born, whether it be economic circumstance, intellectually, or capacity to be motivated. The other bite, which really does warrant debate is why the discrepancy in payment has only grown in recent decades.

There is consensus that CEOs deserve more than the average worker with respect to income. But they are paid far more than people think they deserve and more than people think they’re actually getting.

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