CEOs! Pay hike!

I came across an article titled “CEO salary averages Rs 2 crore and is rising” in Business Line dated 24^th 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!