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How Much Should a CEO Really Make?
Despite an ailing economy and nearly 10 percent unemployment, CEOs and Wall Street executives continue to bring in record compensation. Our Board of Directors sounds off on how much bosses should pay themselves.
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The rich, it seems, only get richer -- even during tough times. Despite an economic hangover stemming from the Great Recession and continued struggles on Main Street, CEOs and Wall Street executives are expected to bring in record compensation this year. Amid a midterm election season with populist undercurrents, many of which stem from an unemployment rate stubbornly stuck at nearly 10 percent, such news got us thinking: How much should a CEO really make?Wall Street pay is on pace to break a record high for the second consecutive year, with the top 35 publicly traded securities and investment-services firms set to award $144 billion in compensation and benefits. And a recent analysis by our sister site, DailyFinance, found that it is not uncommon for CEOs of some of the nation's largest public companies to make more in a single day than some of their employees make in an entire year.
Most entrepreneurs do not embark on the crazy journey of starting their own businesses to get rich. Well, not solely to get rich. Sure, there are greedy capitalists and profiteers out there -- heck, some even pride themselves on it. For taking such risks, they feel they deserve to reap the rewards. And in a capitalist society, there is certainly nothing wrong with that. But talk to enough entrepreneurs and you also hear refrains about creating jobs, nurturing employees, supporting local economies and giving back to society at large through charity, social responsible business practices and other means.
In a private company, compensation is, of course, usually kept private. But it remains a tough call for some entrepreneurs. How much should the boss pay himself or herself? How much is enough? How much should they tell their employees -- and how much should they make? We asked our Board of Directors to weigh in.
Bob Parsons
Founder and CEO, The Go Daddy Group
"More often than not, a good entrepreneur has to be a bit of a gambler. You have to be willing to take risks -- even with your own paycheck. As CEO of GoDaddy.com, I made what amounts to minimum wage for years. I wanted to reinvest in the company, pay good people good wages and build for the future. That risk eventually paid off. When an entrepreneur finally 'makes it,' they deserve to benefit financially, but it's a process."
Clint Greenleaf
Founder and CEO, Greenleaf Book Group
"I don't think there should be any salary controls for any position. I don't support minimum or maximum wages -- people negotiate salaries with companies, and if either side thinks it's unfair, either can end the agreement. This is a place for the free market to choose, not for us to sit in an ivory tower and come up with some silly mandate."
Lawrence Gelburd
Lecturer, The Wharton School
"Entrepreneurs should pay themselves as much as they like as long as it is not harming the company's financial health and culture. The golden rule helps too -- if your boss paid himself the same amount under the same circumstances, how would you feel about it?"
Phil Town
Investor and Author of Rule #1 and Payback Time
"The amazing thing about the massive disparity between CEOs and their employees is that it is the unintended consequence of a law passed by Congress during the Clinton administration to restrict CEO pay to $1 million a year unless the pay is incentive based. Boards shifted to stock options to meet the letter of the law and still be able to pay CEOs what they are worth -- and the whole thing just blew up into this gigantic disparity. CEO pay is mostly based on stock prices going up. Employee pay isn't. Entrepreneurs have always had this sort of disparity. We own our businesses, often 100 percent. If the value of the business goes up faster than the cost of labor, the disparity will increase. I'm all for it, if and only if the CEOs are actually doing something to increase the long-term value of the business. Most of them, unfortunately, are working hard at increasing the short-term value of their options."
Rob Adams
Director, Texas Venture Labs at the University of Texas
"Interestingly, the DailyFinance article focused on large, public companies. I'm a big believer in equity-based compensation, but I think in the case of a large public company, that equity compensation should span a longer time frame than the rolling one- to three-year windows most of these companies tie their CEO compensation to. I also think for larger companies, the boards need to be more independent of the CEO and the compensation committees need to be more accountable. "On the flip side, to answer the original question, I think if the entrepreneur built the business, they are entitled to whatever the business can bear. If private, this compensation would be opaque to the outside world. If public, they would need to follow the same guidelines above."
Lexy Funk
Co-Founder and CEO, Brooklyn Industries
"An entrepreneur should pay themselves an average salary (say $150,000 to $300,000) and then make their money from capital gains. Tony Hsieh from Zappos is exemplary in this matter."
Jennifer Hill
Chairwoman, Astia NYC Advisory Board
"If you can't look an employee straight in the eye and feel like what you pay them is rewarding, motivating, reflective of merit and the company's performance -- especially as compared to what you pay yourself -- then think again."
Eric Ryan
Co-Founder and Chief Brand Architect, Method
"What should a CEO make? Its a tough question because companies at different stages have radically different needs from a CEO. The goal should be to have a very well-balanced leadership team that is not overly dependent on any one individual contributor. So, personally, I believe a good rule of thumb is that the CEO should never make more than three times the lowest paid leadership team member. It ensures that the focus is on building an all-star team versus a team surrounded by an all-star. Need proof? Look to which teams are winning championships in professional sports."
Comments (Page 1 of 3)
"Our Board of Directors sounds off on how much bosses should pay themselves." Notice what most of your Board of Directors has to say - Hand off, America is still a capitalist nation, despite what you leftists in the media write about what you perceive as greed. That is, until you make some of that big money for yourself, then let's see you cap your own salaries. you should do a littel research into capitalism vs other financial systems, then write an article.
"The rich, it seems, only get richer -- even during tough times." Mr. Kurtz, that class warfare BS will not play with those who know what you're trying to say. If you sound like a progressive liberal socialist, and write like a progressive liberal socialist, then you are a progressive liberal socialist. What if AOL caps your salary because they think you're making too much? That's different, isn't it?
If you want to kill the American Dream, kill the motivation to invent new products, medicines and technologies that will tranform the world, which keeps America in the financial forefront, whihc keep millions of Americans employed, then cap salaries - or re-elect our socialist-in-chief and his cronies.
The election on Tuesday, November 2nd will be a sobering referendum on American socialist politics. If the GOP has a any sense, they will listen. For most Democrat incumbents, it's too late.
I believe that CEO's should not make anymore than the President does.
To do so is to say that they are better than the president.
I think that making $20,000,000 ON TOP of your salary and benefits and your compensation IS making too much. That is what the CEO of UHS hospitals in King of Prussia, Pennsylvania makes.
Someone should ask him why.
The Great Class War is over. It started on January 20, 1981 and the rich won.
I am amazed that "intelligent?" people focus so much negative attention on the salaries of business people who are personally responsible for the employment of countless Americans, but have absolutely nothing to say about the salaries of celebrities, including sports figures(entertainers). If there's a place to "cut back" in order to put more cash in our pockets, let's get that money from all the overpaid celebrities and sports entertainers who are not personally responsible for the employment of Americans. Boycott overpaid celebrities and sports entertainers and watch their salaries drop to what a CEO makes.
Yes indeed and in fact; they should make as much as they can. It is a heavy burden to run a company in America. If that company is not American, and only pretends to be, i.e. importing their goods from China then the CEO should not make one red cent.He/She should be drumed out of the country, tar and feathered. They should not be allowed by the SEC to tade on the NY Stock Exchange. The End.
I feel that you can't put limitations in income, it would go totally against free enterprise, and for that person who says not to make more than the president, that is totally ridiculous, first, the president not only has a salary (I believe is $400,000 per year) but when you add the extra expenses paid, the presidential account etc, it accounts for seven figure, maybe even 8 figure per year, it can't be calculated!
I only will ask for CEO salary control in companies with problems, bacnkgrupcy, SEC and FTC, etc, they have to be limited until companies get back to normal..
George
I have no problem per say what a CEO makes per year. However, if a CEO is not doing their job or performing as to taking the company to where they need to go then he shouldn't be given Millions of dollars to get fired. In our everyday world if someone doesn't perform well they they are fired. Why should CEO's be rewarded with several million when they are fired?
Wait a minute . . . there is a HORRIFIC DIFFERENCE between an "Entrepreneur" and a CEO who is merely a paid manager of a corporation. Once a company goes public, the rights of the stockholders should override the greed of a CEO. Entrepreneurs who finance and oerate private companies are entitled to do whatever they want to do ... if they ruin the company, that is their loss. But the friggin CEOs are nothing more than "gloried management"; and those guys certainly do not deserve the horrific salries, perks, and bonuses that they are receiving.
The horrific compensations of "employee" CEO has become a "perversion" of capitalism" and is a root cause of our national econmoic disasters and crises. Most of these "bums" should be fired, along with their rubber stamp "Corporate Boards". It is time for major changes to save our economy.
Bayconnect, do you believe in free markets or "fairness"? So who do you believe should be policing the CEOs and Boards of Directors, maybe the US Chamber of Commerce? There are no easy answers. Do you want the federal government to rewrite the rules for business? We all know how that will turn out, since our elected officials are so successful at getting America further in debt. You want to rewrite the rules for CEO golden parachutes and retirement? Who would you trust to do that?
The leftist media will always emphasize business negatives and class warefare, it's just who they are. There are millions more big and small business success stories where true leaders emply millions of hard working pelople, who all benefit from their hard work and innovation. What's really "unfair" is that the leftist media does not focus on those success stories.
How do we gauge performance and success in business?
Sorry I can't make the world more fair for you, but you just sound jealous-that someone could actually walk away with millions for failing, or for just walking away.
Your question just begs more questions.
Funny how these how these great supporters of paying a CEO when the company does not achieve financial results. Anything less is socialist BS.
No check and balances required from these folks. Oh yeah, the BODs can fire the CEO. Right, name five CEOs fired in the last 5 years that did not walk out the door with a big going away present?
John, good question. Maybe Flyingace will provide a good answer?
Evil. Responsibility. Greed. Opportunity.
Where is Crawford Greenwalt when we need him?
This is definitely an evil site.
There is little hope for America.
Tom Nichols in Houston
My theory for our good, bad and ugly monetary behavior: Millions of years of evolution - God or no God. We are what we are... human primates. Were territorial, hierarchical, giving, greedy homo-sapiens... clever, somewhat wise, often ignorant. We used to throw fruit seeds and peels from trees... now we toss Big Mac wrappers and beverage containers from our vehicle windows. I have a millionaire friend who hordes his money because, he wants to be remebered for the wealth he accumilated. To each his, her own eh?
No CEO should make more than $1 million per year and likewise for a professional athlete. If a person cannot maintain a decent lifestyle and prepare for retirement at that rate of pay, then they have problems.
as much as they want.
Well.. Those who have Never Been Self Employed, nor Been at the Top.. Don't Realize one big Factor for why They Need to be Paid Very well...
1-You deovted bot your life and all the $ you could get to get a Very Top Education- $150k College?
2- You spend and devoted your Life Working your way UP The Corp. Ladder..
3.-Now that your At the Top? Your the 1st to go.. as well.. Ave life at the top is less than 5 yrs..
and then What do you do to make a living after? go work at Wal mart?
You going to go get a Job at a Lower Position somewhere else? Get Real..
Would you take a Lower Paying Job and Position the rest of your Life?
So once you Do get to the Top? You not only have to Make your $ to pay your Current Bills, but A Plan to make and have enough to Finance the Rest of your Life After your No longer a CEO,etc..
EXAMPLE> If you need $100k yr in your FORCED "Early Retirment" ? at 3% yr from it so it will last the rest of your life? How much Do you need to have Saved up? Ans? = Over $3 Million..NET after Tax Savings.. thus you have to make a Minimum of How much if in a 32% Tax Bracket? Ans? Almost $5 million Gross
And that's at Per $100k Income Needed! Imagine if you Need $500k or More ? = $15 Million Net and $25 Million Gross B4 taxes..!
Why do you think Movie stars Get such Big Dollars to do a movie? It maybe their Last ..
and where to they go to make a Living afterwards? Go work at Wal mart?
So keep all this in mind before you go Criticizing them..
@Dkp50
You, sir, do not know anything. You can't even write a simple comment with correct punctuation, grammar, or outline. Not to mention your ludicrous statements. You tried to make part of your argument about future employment, but obviously you have never been in this position or know anyone in a position like this! They don't have to go back to work you dumbass! It's called investments! They've been working their whole lives amassing more and more wealth, and now they're at the top, and you're essentially saying that after that they'll have no easy source of income? Considering you're basically performing written fallacio on these people that you have deemed worthy of making tens of millions of dollars a year.
Counter Argument:
Do i think that these CEOs deserve to be paid high amounts of money? Hell yes. Like you said they deserve it. They have proved to be exceptional in their respective companies, and, I won't argue, they earned it. However everything else you had to say was bullshit. And since you have probably lived solely on a 5 figure salary all your life, this will probably be tough to grasp. Nobody needs that much money just sitting around! In the words of Antoine Dodson "You are dumb, you are really really dumb."
Good day to you,
I said good day!
Your "logic" appears to be totally from the perspecitve of the CEOs. What about the logic of the "value received in the value of the services to the stockholders, who ARE the owners of the corporations, right?
Personally I do not consider it to be much different than the exorbitant salaries received by professional athletes. These guys arn't doing anything more than the professional athletes of the 1950s; and their exorbitant pay is just not warranted to me. I take exception to the teams benefitting from any tax break or subsidies to build stadiums for the priate owners of the teams. There are certainly more than enough potential CEOS and professional athletes to warrant reducing their ridiculously high "salaries and benefits" SUBSTNTIALLY. None of them are really worth that exorbitant compensations for what they do.
It is time to return to the compensation rates that were paid BEFORE President Reagan's "deregulation" of businesses. Everything after than has been defrauding the stock owners and the American public.
CEO compensation should be based on the market place, and stock options limited and set with higher strike prices. In no case should CEO's recieve outlandish compensation, until or if the owners (shareholders) have been rewarded. In the case of inferior performance compensation needs to be limited.
In public corporations ceo's are employees. The system does not allow for the law of supply and demand to work. This is a good old boy club where the directors, ceo's cfo's pres and vp's take care of each other with someone elses money. There are lots of capable people in the country who did not get their mba from Harvard or Yale or Wharton but are just as capable of running these companies and would be glad to have the chance for far less money. The good old boy club are white collar theives who reward each other for failure with golden parachutes. When you talk about entreprneurs, no owner operated business would run this way. Boards of directors should be made up of soley stockholders who purchased their own stock and employment interviews should be competetive. The board needs to have a vested interest in the spending. These public companies operate now like no one owns them. Just like the congress and the senate, it's easy to spend when it's not your money.
The standard at present is that CEOs make between 300 and 500 times the wages of the average worker. I'd like to see a maximum cap at 100 time the average worker. There is no way a CEO does the work of 100 men. Their salary, stock options, and special compensations are obscene at a time when people are losing their houses, cannot afford health care, and if they are lucky enough to have a job are forced to work at minimum wage. Under Bush, the US has seen a massive shift of cash from the hands of the middle class to the super-wealthy. It's time for a little bit of "redistribution" of the wealth. Call it socialism, communism, or whatever you want, it's just FAIR.