Mind the CEO-to-Worker Pay Gap

The days of unfettered CEO paychecks could be coming to an end, as global concern about pay inequality have begun to increase -- and it’s not just talk. From Germany to the United States, proposed legislation has been put in motion to limit massive payouts. In America, the main push is coming by way of financial reform, like the Dodd-Frank Act, which includes a provision that requires companies to disclose what the chief executive officer makes in comparison to the rest of the employees. This kind of public transparency has drawn much criticism as some businesses fear making such extreme differentials public.

(Photo Credit: nikoretro/Flickr)

Some European nations have already started taking action by introducing laws that cap executive pay and incorporate employee board members. Companies like Volkswagen have reduced the salary of their CEO, even though profits are hitting record highs. Similar efforts are being made all over the continent in hopes of reducing high turnover, low morale, and employee strikes. The International Monetary Fund has also recognized the benefits from regulating massive bonuses, noting that such measures would induce “faster and more durable growth.”

Some notable CEOs have taken action as well in an attempt to balance pay distribution. Facebook’s Mark Zuckerberg is one of the CEOs supporting the idea by earning a $1 salary, an idea first suggested by Apple’s co-founder Steve Jobs. Even though Zuckerberg controls majority ownership of the company, the $1 annual salary is a strong indicator he and other $1 CEOs are committed to tying their financial fates to the success of the company.

This recent scrutiny is a sign of the times, as businesses and policy makers alike are being called upon to help close the pay gap. Only time will tell if a cooperative effort is put forth in order to bridge this great divide.  

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  1. 2 Jack Connell 27 Jun

    Executives of poorly performing companies are definitely paid too much but in general, executive compensation has become much more closely aligned to performance.  On the CEO to median worker pay ratio, it is a metric that is solely important to the press and shareholder advocates, but in reality it is somewhat meaningless.  The market is what the market is for both CEO's and the employee population in general and firms cannot and most do not significantly overpay or underpay.  Are there a few bad apples still?  Absolutely yes.  Does the system still run amok?  No, as changes over the last 5-7 years have finally set in.  Boards are mostly independent, the Board independently works with an exec comp consultant and sets CEO pay, pay is better linked to performance and yes, the market for people that can run a multi-billion dollar company is very small, driving pay up.  I did executive compensation consulting for 20+ years and have worked inhouse for 15 as well, so understand both sides of the issue.  Is $10M a lot of money to pay a CEO.  Yes.  Do people complain about it?  Yes.  Do they complain about actors, sports stars or entertainers making $20M a year.  Rarely.  It is time to realize we live in a capitalist society and stop complaining.  The news media needs to stop fanning the flames.

  2. 1 jill 26 Jun

    Interesting article!


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