CEOs over-paid

The United States is the most economically stratified society in the western world. 14,000 American families hold 22.2% of wealth. 300,000 Americans collectively enjoyed almost as much income as the bottom 150 million Americans.

The American Dream is one of upward mobility. U.S. citizens believe that if one works hard, and plays by the rules, they can ensure themselves the quality of life that they desire.The dream toward upward mobility has been limited to a select class of corporate executives who have received record levels of remuneration. According to the 2010 Wall Street Journal analysis of CEO compensation, Larry Ellison, CEO of Oracle Corp. received $1.84 billion and Barry Diller, CEO of Interactive/Expedia.com received $1.14 billion, and another 6 CEOs received at least $500 million in total pay.The average CEO of a major corporation in the U.S. was paid $15 million in 2005.The average U.S. worker's salary in 2005 was $40,000 and it has actually declined during the recession. The CEO compensation as a multiple of the average employee compensation in the U.S. is a multiplier of 531 as of the year 2000.

What are the reasons for what appears to be exorbitant CEO salaries? Many reasons have been given: CEOs have too much power; the inattention of boards of directors; conflicts of interest by compensation consultants; and the reliance on stock options. According to the National Bureau of Economic Research, the pay increase of senior executives has been a major source of rising inequality of wages in that country. In a recent Bloomberg poll, 80% of Americans agreed that CEOs are paid too much. One concern is that executives are encouraged to make business decisions that benefit themselves rather than the organization in order to meet performance goals necessary to receive incentive pay. This is particularly likely if the incentives are short-term in nature. For example, an executive may drive up short-term profits that cannot be sustained, only to collect a large bonus and leave the company before long-term financial problems are revealed. Reward for failure or success? One study compared CEO compensation for the 20 worst performing companies in 2000-2001 to the 20 best, measuring return on equity. The results? The companies with the lowest CEO pay levels did had better business results than the companies with the higher CEO pay packages.

Taken from Psychology Today