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The firm decides whether to hire at a price the CEO asks; not what to pay. There is maybe a percentage of leeway, but not a lot. A salary is just what it costs
by mjburgess 5y ago
The firm decides whether to hire at a price the CEO asks; not what to pay. There is maybe a percentage of leeway, but not a lot.
A salary is just what it costs to retain your employment -- that's it. When you can find higher pay elsewhere, eventually you will take the offer. Companies arent donating money.
CEO pay has only become significant in recent years because of equity, ie., CEOs since the 80s have increasingly been paid in shares. That is where the disparaity comes from.
Since the CEOs job is largely to focus on the share price -- do you see why giving them lots of equity is exactly the sensible thing to do?
- rswail 5y agoThe CEOs job is not to focus on the share price. It's to focus on the business being profitable and successful. The resulting share price is a side effect, not a goal. Having a high share price is a secondary indicator of expected revenue, growth, and profit. Giving CEOs equity is exactly the wrong sort of incentive, because it provides opportunities of massaging the expected long term results to achieve short term price variations in the favor of the CEO.
- mjburgess 5y agoThe company is owned by its shareholders who vote on issues such as CEO pay and the board compensation. The business being "profitable and successful" is the objective of its owners because they want a return on their investment. It is the objective of the CEO only insofar as that is what they are hired to do. CEOs are given equity to align their incentives with the company owners. Im not sure who you think is hiring CEOs or why, but it isn't someone with an idealistic sense of "success". The CEO is given their mandate by the company investors.