Question

Various Governements have recently been considering putting limitations on top corporate executive pay and/or taxing corporate executive bonuses very highly (for example, a 70 percent tax rate). What are the implications of this on the market for top executive talent?

Answer 1

The actions on the part of the government in the form of capping the top corporate executive pay and/or taxing corporate executive bonuses very highly will have far reaching negative implications for the top executive talent market on an overall basis.

This is because the government is simply focusing on the wrong problem at hand. The problem is not how much the top corporate executives and CEOs are paid but how they are paid. CEOs and other CXO level managers like CFO, CIO, etc. will obviously be paid high salaries as they are the people who are in charge of success of the company and driving the company to its desired goal, objective and position in future. These are the people who form the strategy and then steer the company in the right and optimal direction that will best fulfil and meet the interests of all the stakeholders.

Given the job at hand it is but justified that top corporate executives get a high pay. Their pay is commensurate and reflective of their work, their skills and talents and their experience. So by capping their pay or by taxing the pay at exorbitant rates government is killing the market for top executive talent. In the absence of attractive pay and reasonable pay the pool of talented people and individuals who are suitable for CXO roles will dwindle and hence their supply level will fall sharply.

To rectify the situation the government should focus in how the top executives are paid. Their pay and compensation should be tied to their performance levels. In other words compensation of CXOs should not be independent of performance. This is the point on which the government should focus and if the government focuses on this point then the market for top executive talent will not be negatively impacted.