Should CEO's Make Such Exorbitant Salaries?

Essay by ricconyCollege, UndergraduateA, February 2004

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In the media recently, there as been much said of many of today's executives receiving pay and compensation packages that are often too excessive and the disparity between CEO's and the average worker pay keeps widening. To many people, the continuing explosion in the pay of chief executives seems little short of obscene, reflecting the arrogant use of power by top executives to enrich themselves at the expense of stockholders and workers. To others who defend the trend, it represents just rewards for successful efforts to enhance shareholder wealth. To determine which view is more accurate, this paper will provide answers to the question, should CEO's make such exorbitant salaries? Information will on the different influences of CEO pay, how have they varied from the average worker and do they deserve it? This paper will reflect the position that CEOs do not deserve such exorbitant salaries.

In a study by Graef Crystal done in 1973 on CEO's of major companies found that CEOs earned about 45 times that of the average worker.

The pay gap continued to rise in 1990 to 140 times and today it is just below 500 times that of the average worker (Executive Excess, 2002). It is the position of Bob Kievra (2003) that corporations need to supply large compensation packages to attract and retain good management personnel. This is often negotiated by forecasting compensation packages that are based on the projected increases in shareholders' wealth as a result of the anticipated increase in management performance. If stockholder wealth is a result of management performance then shareholders should be able to justify high executive pay. However, recent studies have suggested that CEO pay is not linked to performance (Gomez-Mejia, Luis Wiseman, Robert M. 1997) but rather their influence over the board of directors, as well as...