Why Do CEO’s Get Paid So Much?

I, for one, get pretty sick of the people telling everyone that CEOs are overpaid.  Salaries are a function of market pressures (supply and demand) that forces companies to pay CEOs in line with what the market demands.  For example, why would your company pay a CEO 11 million dollars a year when they could hire someone of equal talent for 2 million dollars?  They wouldn’t.  The Board of Directors is usually made up of industry experts, other CEOs, directors of other companies, and former executives.  This Board of directors determines the CEO’s salary, and they are unlikely to overpay for someone if there are better options available at lower prices.

That was the generic answer.  The real answer is that the CEO position is extremely demanding and there are only a handful of people who can handle it within any organization.  You need to be excellent at consensus building, visionary thinking, strategic execution, human resources, investment community relations, and you have to be able to make huge decisions that affect thousands of people without letting the personal side affect you to the point of making bad/late decisions.  It is a stressful position that very few are ever elevated to, and very few could handle if they were.  You have little/no job security, and your fate lies with the company (which often can unravel based on lower-level management decisions that have nothing to do with you, though it is your responsibility regardless.It is necessary to pay the CEO a large sum to take on a job that is so unbelievably demanding.

Also, most CEO’s have a salary in the low millions (or less), and the majority of their huge paydays come from stock options that are only valuable if they keep the company moving in the right direction.

In my humble opinion, most CEOs are worth the money, and many CEOs are worth considerably more, as their resepective companies would be in vastly different positions without them in their leadership position.

Good luck out there!

Todd Hagopian

Please follow this conversation on quora.com:  http://www.quora.com/Why-are-CEOs-paid-so-much/answer/Todd-Hagopian

About Todd Hagopian (@ToddHagopian)

Todd Hagopian received his BA from Eastern Michigan University with a major in Political Science. After graduation, he worked as a Financial Advisor and a Bank Manager before returning to school. He attended Michigan State University, where he completed an MBA with a double-major in Finance and Marketing. Todd is now a Senior Product Development Manager for a Fortune 500 company. He frequently writes about business issues, social media strategy, and political issues that he finds important. Enjoy the blog!

Posted on September 23, 2011, in Business Strategy and tagged , , , , , , , , , . Bookmark the permalink. Leave a comment.

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