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Why are American CEOs paid so much?
By Elan Journo
Posted: April 6, 2006
and groans, don’t expect to hear complaints from fans about the teams,
and that it is morally proper to reward achievement.
had to accomplish to reach the Super Bowl and recognize that the
players' multi-million dollar salaries. Fans know just what the players
players have earned their pay, that the MVPs are indispensable to their
teams, and that it is morally proper to reward achievement.
Yet MVPs of the business world are not admired for their achievements,
but reviled as overpaid fat cats. Many people are indignant about CEOs
collecting pay packages worth upwards of $230 million a year and
enjoying perks like corporate jets for personal use. Astonished to learn
that what an average worker earns in a year, some CEOs earn in less
than a week--people ask themselves: "How can the work of a corporate
paper-pusher be worth so many millions of dollars?"
The answer is that successful CEOs are as indispensable to their
companies as Super Bowl-winning quarterbacks are to their teams.
They earn their rewards.
How big an influence can one man have on the fortunes of the entire
corporation? Consider the impact of Jack Welch on General Electric.
Before his tenure as CEO, the company was a bloated giant,
floundering under its own weight. Splintered into dozens of distinct and
inefficient business units, GE was scarcely making a profit. Welch
turned it around. He streamlined and reorganized the company's
operations and implemented a sound business strategy yielding more
than $400 billion worth of shareholder wealth.
In business, success requires long-range thinking. But CEOs must
project a strategic game plan in terms not merely of a month or two, but
of years and decades. A biotechnology company, for example, may
spend 15 years and billions of dollars developing a new cancer-fighting
medicine. Success is impossible without the business acumen of its
CEO. For years before a marketable product exists, he must raise
sufficient capital to sustain the research. What long-term business
model will attract venture capital? Should the company accept short-
term partial sponsorship from a large drug manufacturer in exchange
for a modest royalty on the drug in the future--or risk going it alone and
possibly running out of funds? It is on such decisions that a company's
success is made--and lives of cancer patients may depend.
In order to be successful in the long range, the CEO's strategy must
encompass countless factors. He must devise a plan to grow the
business in the face of competitors, not only from within the United
States but from any and every region of today's global economy. The
CEO calls the plays for a team of tens (and sometimes hundreds) of
thousands of workers. All of the actions of every employee and every
aspect of the business must be coordinated and integrated to produce
the cars, computers or CAT scanners that yield profits to the company. It
is the CEO who is responsible for that integration.
To successfully steer a corporation across the span of years by
integrating its strengths toward the goal of creating wealth and requires
from the CEO exceptional thought and judgment. Excellent CEOs are as
rare as MLB-caliber pitchers or NFL-caliber quarterbacks. And in the
business world, every day is the Super Bowl. There is no off-season or
respite from the need to perform at one's peak.
Given the effect a CEO can have on a company's success, we can
understand why their compensation packages can be so high. One way
employers reward excellence is through bonuses. For many CEOs,
bonuses amount to a large portion of their earnings. Some CEOs are
paid a token salary, but are rewarded with large parcels of company
stock. As is the case with athletes and other individuals whose talents
are rare and much prized, the CEO's pay package is calculated with an
eye on the competition. Companies pay millions of dollars to a valuable
CEO, one who they judge will produce wealth for the shareholders, in
part so he will not be hired away by a competitor.
On the gridiron, the baseball diamond and the basketball court, we see
and admire the physical prowess of a superlative athlete--one who
earns the title of MVP--and we understand that it is morally proper to
reward him accordingly. Though the efforts of CEOs are not televised on
Monday Night Football, their achievements are real and have a profound
benefit to all our lives. It is time that we learned to appreciate the work of
successful CEOs and recognize that they deserve every penny of their
salaries.
### ### ###
Elan Journo is a junior fellow at the Ayn Rand Institute in Irvine,
California. He can be reached via www.aynrand.org
By Elan Journo
Posted: April 6, 2006
and groans, don’t expect to hear complaints from fans about the teams,
and that it is morally proper to reward achievement.
had to accomplish to reach the Super Bowl and recognize that the
players' multi-million dollar salaries. Fans know just what the players
players have earned their pay, that the MVPs are indispensable to their
teams, and that it is morally proper to reward achievement.
Yet MVPs of the business world are not admired for their achievements,
but reviled as overpaid fat cats. Many people are indignant about CEOs
collecting pay packages worth upwards of $230 million a year and
enjoying perks like corporate jets for personal use. Astonished to learn
that what an average worker earns in a year, some CEOs earn in less
than a week--people ask themselves: "How can the work of a corporate
paper-pusher be worth so many millions of dollars?"
The answer is that successful CEOs are as indispensable to their
companies as Super Bowl-winning quarterbacks are to their teams.
They earn their rewards.
How big an influence can one man have on the fortunes of the entire
corporation? Consider the impact of Jack Welch on General Electric.
Before his tenure as CEO, the company was a bloated giant,
floundering under its own weight. Splintered into dozens of distinct and
inefficient business units, GE was scarcely making a profit. Welch
turned it around. He streamlined and reorganized the company's
operations and implemented a sound business strategy yielding more
than $400 billion worth of shareholder wealth.
In business, success requires long-range thinking. But CEOs must
project a strategic game plan in terms not merely of a month or two, but
of years and decades. A biotechnology company, for example, may
spend 15 years and billions of dollars developing a new cancer-fighting
medicine. Success is impossible without the business acumen of its
CEO. For years before a marketable product exists, he must raise
sufficient capital to sustain the research. What long-term business
model will attract venture capital? Should the company accept short-
term partial sponsorship from a large drug manufacturer in exchange
for a modest royalty on the drug in the future--or risk going it alone and
possibly running out of funds? It is on such decisions that a company's
success is made--and lives of cancer patients may depend.
In order to be successful in the long range, the CEO's strategy must
encompass countless factors. He must devise a plan to grow the
business in the face of competitors, not only from within the United
States but from any and every region of today's global economy. The
CEO calls the plays for a team of tens (and sometimes hundreds) of
thousands of workers. All of the actions of every employee and every
aspect of the business must be coordinated and integrated to produce
the cars, computers or CAT scanners that yield profits to the company. It
is the CEO who is responsible for that integration.
To successfully steer a corporation across the span of years by
integrating its strengths toward the goal of creating wealth and requires
from the CEO exceptional thought and judgment. Excellent CEOs are as
rare as MLB-caliber pitchers or NFL-caliber quarterbacks. And in the
business world, every day is the Super Bowl. There is no off-season or
respite from the need to perform at one's peak.
Given the effect a CEO can have on a company's success, we can
understand why their compensation packages can be so high. One way
employers reward excellence is through bonuses. For many CEOs,
bonuses amount to a large portion of their earnings. Some CEOs are
paid a token salary, but are rewarded with large parcels of company
stock. As is the case with athletes and other individuals whose talents
are rare and much prized, the CEO's pay package is calculated with an
eye on the competition. Companies pay millions of dollars to a valuable
CEO, one who they judge will produce wealth for the shareholders, in
part so he will not be hired away by a competitor.
On the gridiron, the baseball diamond and the basketball court, we see
and admire the physical prowess of a superlative athlete--one who
earns the title of MVP--and we understand that it is morally proper to
reward him accordingly. Though the efforts of CEOs are not televised on
Monday Night Football, their achievements are real and have a profound
benefit to all our lives. It is time that we learned to appreciate the work of
successful CEOs and recognize that they deserve every penny of their
salaries.
### ### ###
Elan Journo is a junior fellow at the Ayn Rand Institute in Irvine,
California. He can be reached via www.aynrand.org
| (c) 2006 New Criterion Foundation, London |