Question

9.Executive Compensation Critics have charged that compensation to top managers in the United States is too high and should be cut back. For example, focusing on large corporations, Dara Khosrowshahi (now at Uber, formerly of Expedia) has been one of the best-compensated CEOs in the United States, earning about $95 million in 2016. Are such amounts excessive? In answering, it might be helpful to recognize that superstar athletes such as Cristiano Ronaldo, top earners in the entertainment field such as James Cameron and Oprah Winfrey, and many others at the top of their respective fields earn at least as much, if not a great deal more

Answer 1

In terms of executive compensation, I certainly think that some of the top executives are being paid an obscene amount of money and that is actually causing disharmony in the organizations and society as a whole. For example, some of the technology companies have CEO compensation in excess of 500 times of the median income of an employee in the same organization. This reduces the long term view that an executive should take regarding the health of the company. Moreover, it incentivizes the executive to look for short term results which further pushes high his compensation and leave the organization at the slightest hint of trouble. With regards to comparison with sport stars and celebrities, it is pertinent to note that the comparison is not fair since sport stars and celebrities have a limited career span and hence they have to make money in that period only in order to sustain their lifestyles for their entire life.

In contrast, an executive could be working for a period of 40 years and earning so much money in a short period reduces his/her willingness to have a long term view of the organization's growth.