Everyone outside large corporations believes they pay their CEOs more than necessary for their performance, or at least a huge majority.
In the latest of a million articles on the topic, “How Much Is a C.E.O. Worth? Americaâ€™s Confused Approach to Pay,” the New York Times continues to ask ineffective questions about changing anything. Like most articles, it asks “Do corporate chief executives make too much money, or too little?” and other questions of value.
We already know there is no absolute measure of worth. Corporations pay what they negotiate with CEOs, the same as with other employees. Nowhere does the article use the most relevant words in pricing: supply and demand. Therefore the article never reaches any helpful solutions.
I can tell you that no matter how much anyone feels a CEO should earn, no one would pay them a penny if someone more qualified and available was willing to do it for less.
According to Wikipedia:
Economic theory asserts that in a free market economy the market price reflects interaction between supply and demand: the price is set so as to equate the quantity being supplied and that being demanded. In turn these quantities are determined by the marginal utility of the asset to different buyers and to different sellers. In reality, the price may be distorted by other factors, such as tax and other government regulations.
If you want to lower prices, increase supply relative to demand or repair the distortions in the market.
Why do I feel strongly about this issue?
Because I think CEO pay shows a low supply of leaders, meaning we teach leadership poorly. I’m an entrepreneur who sees high demand and low supply for leaders, which implies a high demand and low supply for teaching leadership. I don’t think we, as a society, teach or train leadership effectively and I think high CEO pay, often for performance below expectations, shows it.
I also hope to change the market by helping teach and train leaders, so that when some CEO demands a thousand times higher pay than someone on the line, the board can say, “We have another candidate who is more qualified who will work for less, so sorry. We’ll pass the savings on to our customers, employees, and other stakeholders.” Maybe they’ll add that they consider the other candidate more qualified from having taken my course or, by then, my program.
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