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CEO’s salaries have rationale

The typical American today believes that a CEO is paid too much for the work they do. They hear stories about the 1 percent twiddling their thumbs at work and getting loads of extra money they do not deserve.

Though the reasons can be hard for the average citizen to relate to, there is reasoning for why CEOs make so much money. What could validate the 163,000 dollar average salary Payscale.com claim CEOs have? Death. More specifically, the sudden removal of a CEO from a company. If once the CEO dies or moves on from the company, the company experiences a gain, then they were being overpaid because the CEO was losing the company money. However, if stock prices plummet once the CEO leaves, their salary was not taking from the company as much as the individual was adding, proving the costs worth it. Though one may agree or disagree with this principle, this is the way most salaries are decided; an employee is paid an amount near what they add to the company, and if their salary causes the company to take a hit, they are being paid too much. Why not pay them much lower, then, to give the company as much gain as possible from their involvement? Because if a person is paid too much less than what they bring to the company, they will leave. This may not be possible for minimum wage workers who are living paycheck to paycheck, and thus must take what they get to get by, but at a CEO’s level if they feel undervalued, they will seek other work, or if another company believes it can make a better offer without exceeding that value, it will lure them away.

Some criticism in the business world has cropped up on the topic, less that CEOs in general should have a major pay cut; more accurately, they want there to be stronger connection between CEO pay and performance.

CEOs can be put in danger, and often costs can be allocated to pay for security systems, though sometimes the company will cover these if they seem reasonably directly connectable to the CEO’s involvement with the company.     As the Harvard Business Review puts it, “More aggressive pay-for-performance systems (and a higher probability of dismissal for poor performance) would produce sharply lower compensation for less talented managers. Over time, these managers would be replaced by more able and more highly motivated executives who would, on average, perform better and earn higher levels of pay.”

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