I came across an
article titled “CEO salary averages Rs 2 crore and is rising” in Business Line
dated 24th February, 2012. (http://www.thehindubusinessline.com/companies/article2923625.ece)
This article made me to think about the reason why CEO’s salary is growing at a
very high rate.
Actually
in the 1980s, CEO’s salary was 42 times more than average hourly workers pay.
But now, it is 342 times more. Another important fact is that the percentage rise
in executives’ pay is around 7% per year, which is considered to be low with
regards to the increase in CEO’s salary of about 24%. Employees normally feel
that this wide difference in pay is unsympathetic. It is expected to have a
proportionate increase in pay for all the employees of the organization
including CEOs. The concept called “Pay for Performance” has thrown the seed in
the minds of the employees to think about proportionate payment. But, I feel it’s
worth to pay high for CEOs. A small example will clearly tell you the reason
why I think this way. When you take the “Head of Finance”, he is supposed to
manage all the activities that are financially related to the organization. But
the work of a CEO is to strategically align all the activities of the entire organization
along with the global competition. His importance and role in the development
of organization is incomparable with others. And at the same time, it is
competitive enough to have CEOs who are having an holistic approach. Why are all the HR professionals talking about
succession planning? Is it so very important in any organization? Yes, it is.
Whatever may be the size of the organization, it needs a leader who is capable
of taking good managerial decisions in the widely diversified business
environment. If they fail to do, they start searching for “Best CEOs” around
the world and headhunt them. There arises the point of increase in pay to such
top executives. In addition to this, there seems to be a generic relationship
between CEO’s pay and the market value of that organization. The higher market
value implicitly conveys the virtuous performance of the organization, which is
headed by an effective leader. To quote a real time example, let me take the
largest electronic gadgets manufacturer Apple. When Steve
Jobs publically announced that Tim Cook will replace him as CEO, Apple has
observed volatility in its market value. What does this convey? This strongly
ensures the belief of investors on top executives. So, I think it’s worth
paying them to lead the world!
