Saturday, April 08, 2006

CEOs would work as hard for one tenth the pay

According to a study last year by Carola Frydman, a doctoral candidate at Harvard, and Raven E. Saks, an economist at the Federal Reserve, the average top executive's salary was 170 times the average workers in 2004. This is up from 68 times in 1940. a few companies, such as Costco limit the CEO's pay to a modest multiple of the average worker's but most have no limits. We see CEOs "double dipping" by getting guaranteed severance packages, multiple years credit for each year's service towards a pension, and "consulting contracts" for doing no work at all.

This is one of the issues which most Americans agree on. As the multiple continues to grow without any controls, there is likely to be a backlash of some size.

Ultimately, as companies have become larger and more complex, the demands on the CEO have become greater, but the CEO has less impact on the company. The CEO does not even know most of what happens in the company, and since he or she relies on information channeled up, much of it is wrong or incomplete. so ironically, as CEOs are being paid more, even the wonderful ones, and there are some, are hadicapped.

We could also conclude that a CEO would work at least as hard for 17 times the average worker's pay - perhaps even harder since it would not be as easy to earn enough to retire on in a few years alone!

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