The other day I had a discussion with a friend about what I perceive as the excessive level of pay and bonuses received by the CEOs of large corporations and financial institutions. I even mentioned the study that showed no relationship whatsoever between the profitability and success of the corporation and the salary levels of the CEO, as well as one of its conclusions that comparatively lower-paid CEOs often headed up better-performing businesses.
He was anything but convinced. His argument was essentially that, if companies were willing to pay that amount, the executives were worth that much, and that there was nothing wrong with the fact that, in some companies, the CEOs made thousands as much as the salary of the average employee. I’m not against CEOs getting much higher pay than everyone else, but it seems to me that what’s overlooked is that large businesses aren’t successful just because of one executive at the top. The fact that they survive and even prosper while turning over CEOs on the average of every five years suggests to me that CEOs are high-level interchangeable parts, and that means that they’re merely more highly skilled workers, meriting great multiples of the average worker’s compensation, but not to the degree of thousands of times the average salary, and in a few cases up to ten thousand times the salary of the average employee. In fact, until about thirty years ago, they were paid only a hundred times or so the salary of the average employee.
Seemingly lost in the current self-reinforcing beliefs of higher executives are some of the old and truthful adages, such as a chain being only as strong as its weakest link, or the fact that no person is indispensable. Instead, the grandees of industry pose and parade, taking full and often sole credit for the work of thousands of individuals, while giving little but lip-service to those below them and while extolling the benefit of cost-cutting and cost-effectiveness. Yet isn’t it strange how there’s no measurable cost-cutting and cost-effectiveness in the executive suites and boardrooms?
Part of that is because, in a multi-billion dollar corporation, wasteful overpayment to a single individual, i.e., a CEO, is almost noise and doesn’t directly affect the bottom line that much. Indirectly, I’d submit, the effect is much greater, particularly among middle and upper management, because those grandiose salaries inspire brutal and often highly unethical internal power struggles in pursuit of what is often literally a golden fleece. Both the power struggles and the outsized upper level compensation also tend to demoralize lower management and create higher stress levels there. Study after study has shown that stress levels actually are lower in upper management and higher in those who work for them and that the highest stress levels are created at lower levels of management when the expectations of upper management conflict with the lack of adequate resources for achieving those expectations and when the compensation differential between those tasked with a job and those supervising them is highest.
These findings also tend to get buried and never find their way to the executive boardrooms, most likely because corporate emperors are as adverse as other emperors to learning that their imperial garments are illusory and their beliefs self-serving. At least as I’ve observed, the great majority of CEOs are in fact at best marginally more talented than their subordinates, yet the great fallacy of corporate leadership remains — the CEO-perpetuated idea that extra-special individuals preside as CEOs, when in fact a great body of evidence, both statistical and anecdotal, strongly suggests otherwise.