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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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.
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."
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."
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?"
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."
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."
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."
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."
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."