By Dean Baker/Center for Economic and Policy Research
This simple and important question does not get anywhere near the attention it deserves. And, just to be clear, I don’t mean are they worth $20 million in any moral sense. I am asking a simple economics question; does the typical CEO of a major company add $20 million of value to the company that employs them or could they hire someone at, say one-tenth of this price ($2 million a year) who would do just as much for the company’s bottom line?
This matters not only because a thousand or so top executives of major corporations might be grossly overpaid. The excessive pay of CEOs has a huge impact on pay structures throughout the economy. If the CEO is getting $20 million it is likely that the chief financial officer (CFO) and other top tier executives are getting in the neighborhood of $8-12 million. The third echelon may then be getting paid in the neighborhood of $2 million.
And these pay structures carry over into other sectors. It is common for university presidents to get paid in the neighborhood of $1 million a year. The same applies to the heads of major charities and foundations, including those that have combating inequality as part of their mission.
Posted on September 7, 2020