The Pay Gap between CEOs and Employees - Essay Example

?Topic: The compensation gap “Executive Compensation in the US is out of control. Salaries for most CEOs are way too high in comparison to front linewage earners in the same company.” Summary of the issue The difference of the pay between the top executives of the company and the employees that lie at the lowermost tier of the organization is becoming more and more discrete over the years. It has been observed that the salaries that the CEOs of the various US Corporations have increased exorbitantly and the greed of these people have been growing with time. This reaction essay makes an attempt to analyze the various aspects of the issue and tries to provide an opinion about the statement that has been made. Analysis and Evaluation of the issues Survey on the salaries of the CEOs have shown that the discrepancy in the salary have been growing very rapidly. During the 1980s the remuneration of the top executives was almost 42 times of that of the hourly workers’ pay. This had increased to 85 times by the next decade. With the inception of the new millennium the salary differential raised up to 531 times the salary of the junior most executive in the corporation. The Congress has passed a law in the post financial crisis period that made it mandatory for the CEOs and the top executives to disclose their salaries (Smith 1). The compensation that the CEOs were in different forms like salary, perks, bonus, pension accrued over the years and stock options. This compensation ratio of the CEO to the average workers varied across sector. It has been observed that the difference was greatest in the corporations that provided financial services, followed by the companies that produced consumer products. The ratio was comparatively less in the materials, technology and healthcare sector respectively. According to the eminent management thinker Peter Drucker, this ratio should range between 25:1 and 20:1. However the opinion that Drucker posited till as late as 2005, is not followed in the employment market in the United States or any of the multinational corporations that operate in different parts of the world. This kind of differences has led to a growth in the inequality in the distribution of income. While the growth of the wages of the top 1% of the executives have been 361 percent the wages of the employees that belong to the lower hierarchies have grown only by 34 percent over a period of almost three decades. This has a direct effect on the amount of revenue that the US government has collected from the top executives in form of taxes. As a result the income gap of the households has also increased (Mishel 4). Various issues relating to this have also come up in this regard. Only those households which had a top executive of a company as their family member had incomes that were extremely high. This was especially true for the executives who worked in the financial sector. Another surprising fact was that the rate is which the stock markets have grown over the years was less than that of the growth of the salaries of the CEOs. Research has shown that the stock options that the CEOs are offered account for this discrepancy in the wages. Warren Buffet is another supporter of this view. He insisted that the pay the top executives do not justify the work that they perform. He also feels that the CEOs have selfish intensions when they formulate policies in the organization rather than thinking about the benefit of the investors and the health of the company (Buffet 16). According to him a CEO can fulfill his selfish needs by paying fewer dividends to the shareholders and steering the retained funds into projects that may not turn out to be fruitful. Reactions I support the opinion expressed by the authors discussed above and the results of the various studied that have been conducted on this issue. The US financial crisis that had made a lot of families bankrupt was caused due to the extreme greed of the top executives. This greed had forced them to get into deals that were either very vulnerable or illegal. The public money had disappeared within a very short span of time (Jones 10). This money had gone to the financial company executives who did not think about the welfare of the investors. In my opinion it is not justified for any company to attribute the compensation of the CEO to the financial accomplishment of the companies. The CEOs believe in the myth that they are the sole entities who are responsible for the organization’s success and they are indispensible for the future of the organization. I do not agree to this because the employees are the major strength of the organization. If all the employees had not performed the work in a unified manner it would not have led to the success. A lone CEO cannot drive the success in a single handed fashion without the support of the lower level employees. A humble computer technician who works at the lowest tier in the organization is as indispensible as the Managing director of the company. Thus in my opinion the distribution of the income should be in an equitable manner. Of course one fact cannot be denied that a difference in the compensation levels across the hierarchical levels should be present. I think it is essential because the employees should have an additional incentive to work hard and get promoted. Since wages are the greatest factors that contribute to the motivation of the employees hence it has a psychological effect on the minds of the employees. An employee would be encouraged to perform better so that he gets promoted at a higher level. Along with the higher level higher salary would come. But this difference should not be such that it adversely affects the economic condition of the country and widens the inequality gap. Researchers have found out that the talent that the companies look for to employ as the CEO is scarce. Since number of suitable and eligible CEOs are limited in the market, that is the demand for the CEOs exceed the supply, these professionals demand a very high compensation from the companies and the companies are forced to take them in for the sake of their organizations. A large number of unions and associations have come forward who are raising their voices against this curse that is existent in the way the organizations work. I think that those professionals, who are really dedicated to the jobs that they perform, do not look into what return they would get out of their performances. There are various instances of CEOs who do not take any compensation at all or take only a token amount only to establish the legal associations with the corporations. For example, Steve Jobs of Apple Inc. did not accept any kind of compensation in any form from the company he worked for since the year 2003. Other people who followed the same humanitarian path include Larry Page of Google, Larry Ellison of Oracle Corporation and Meg Whitman of Hewlett Packard. A host of names also follow the same path as the names stated. These individuals have only accepted a salary of $1 over the past years. Thus I feel that the human beings need to have a control over their material greed. These principles should be inculcated into the minds of the employees when they start their careers in the organization so that in future they do not take such inhumane steps. All the employees at all levels should keep a social ideal in their mind so that they can contribute to the benefit of the society by and large. Works Cited Smith, Elliot Blair and Kuntz, Phil. Disclosed: The Pay Gap between CEOs and Employees. Companies and Industries. Bloomberg Businessweek. 02 May 2013.Web. 18 October 2013. Retrieved From: http://www.businessweek.com/articles/2013-05-02/disclosed-the-pay-gap-between-ceos-and-employees. Mishel, Lawrence and Sabadish, Natalie. CEO pay and the top 1%: How executive compensation and financial-sector pay have fuelled income inequality. Economic Policy Institute. 331 (2012): 4. Print. Buffet, Warren E. Chairman’s Letter. Annual Report: Berkshire Hathaway Inc. 2006. Print. Jones, Howard. Frogs ate my Mother, Journal of Obscure Facts. Vol 22, 05 June 1944, Web.18 October 2013. Read More