Question

What makes compensation for CEOs such a divisive issue? In both non-profit sectors, and for profit sectors.

Answer 1

Compensation for the CEO is a divisive issue because it is usually so high that it affects everyone in the company. Though it is considered a yardstick on which the benefits and bonuses of all other employees are compared but the difference of their compensation and that of the other employees of the organization is vast. Though their basic pay is aligned with the wage policies of the organization, the other perks and benefits are included which sets their compensation apart from the others.

Many argue on this saying it to be unjust and finding it fair to base the CEO's salary on the organization's performance and in balance with the other employees while others find the high paid compensation justified for the role and responsibility of a CEO. The ones for this compensation say that as CEO holds the most important part in giving the organization a direction and vision for its success and profit earning capability hence his position requires an extreme level of talent. Hence the people who can fill this position are scarce as this talent does not come from mere educational degrees but one has to possess that capability of taking such decisions and the responsibility of the profits from the business.

Also, it is believed that the CEO can give the best of directions and goals to the company to succeed which justifies his pay but achieving those goals with an effective performance by all employees does not involve him. He is not responsible for the way the business performs because he does not play an active role in it. Hence his compensation should not be affected by the business performance. Although these justifications to the raised pay can be contradicted with the point that CEO is one of the most important executive positions of the company is liable to the shareholders and owners for brining profits and making money for them and if he fails to do that from the business then he does not deserve to receive the huge compensation from the company.

With the arguments for and against the high amount of compensation revived by a CEO this issue of fixing how much the CEO will be paid is divisive.