The New York Times reports that the pay gap between top executives in Europe and the US is shrinking, but it hasn’t closed entirely. Here’s one reason: “There is no shame factor in the US,” says Stephen Davis, president of Davis Global Advisors. “In Europe, there is more of a concern about the social impact.”
Well considering CEO’s are in the wealthy 1% of Americans they will get no sympathy.
Perhaps my headline can be read in two ways. I meant it to be: there is no sense of shame in the US about CEO pay. And I certainly think there should be.
In theory, if CEO remuneration can credibly be linked to company performance, I see no reason for a sense of shame.
Admittedly, I have my doubts about how common that is in practice, and I can’t see CEOs forming an orderly queue for genuine, long-term performance-related pay schemes.
Of course remuneration should be closely linked to performance. But there is also a point where too much is too much.
The average CEO at the top 350 US companies received $6.8 million in salary, bonus, options and other benefits last year. That’s 431 times the average production worker. In 1990 the multiple was 100. I don’t think any kind of performance (and that’s average, not exceptional) justifies that kind of disparity.
Surely, the point is that CEOs should be rewarded for their *contribution*.
In the case of very large companies, often they benefit simply from being very large. There’s momentum, inertia, lock-in, network effects etc. that can feed into the ongoing profitability of very large companies. Success due to these things shouldn’t be attributed to the input of the CEO just because they happen on his or her watch.
However smart the CEO, he isn’t 400 times more “productive” than his workers. When you’re looking at these kinds of numbers, the productivity is built into the machine, not the guy that runs it.