Small Company CEOs Work Hard and Earn Less

Less Pay for Small Company CEOs

5489061293_a9b463ae1fThanks to bank bailouts, Occupy Wall Street and other news, there is a lot of attention on CEO pay right now, especially as it compares to the average wages of employees. Whether you agree or disagree with a CEO making high wages at Fortune 1000 companies, it’s hard to argue that CEOs and other C-suite employees at small organizations are being overpaid.

I work with small companies (100-1000 employees) every day and I’m often amazed at how low executive pay is for the level of responsibility that they have. For example, I ran a market report for a CEO at a 350-person company (no industry or revenue defined) and the industry average is $228,000 per year, which includes salary and cash bonuses. To someone making $30,000 a year that may sound like a lot of money, but consider that the CEO is responsible for making sure the 350 people have jobs and can provide for their family. That income seems to me like a reasonable amount.

Hard-Earned Pay

We have to be careful when we make generalizations about compensation and the pay for people with a certain title. We may be unfairly generalizing about what people make or should make without having the correct information.

How Pay Is Determined for Small Company CEOs

What does influence the market value of executive jobs? There are many factors, but based on our data in this area, here are some key considerations for comparing executive pay to the market.

Industry – Industry will affect the market wages for an executive position. For example, in a report on CEO pay at 350-person companies, IT services comes out lower than retail or healthcare. This is arguably because of the reliance on stock as a form of compensation in the technology sector. Also interesting to note, there is a seven percent difference in pay between manufacturing and food manufacturing.

Size of Organization – The size of the organization can be measured in two different ways: number of employees or revenue. While these two variables often have a positive correlation, it’s important to account for both, especially when there is a strong imbalance between them.

Skills – There are some skills that have a positive effect on CEO pay. These skills include financial management and management of senior level employees. CEOs who play a significant role in the financial management of the company show an eight percent increase in pay over those who don’t. This is important because this helps us differentiate between a CEO who may be more of a motivational leader who leaves the senior financial management to a CFO, and a CEO who takes an active role in financial management.

This is just one more reminder about why having competitive market data is important. Good decisions are made with good information, and good decisions mean that you have a fair pay structure for your executive positions, including your CEO who may not be as overpaid as the media would have us believe.

Sincerely,

Stacey Carroll, CCP

Director of Professional Services and Education

PayScale, Inc.

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