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Old 07-28-2008, 07:34 AM   #38 (permalink)
Baraka_Guru
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It is worth mentioning that high compensation and high severance packages for CEOs is a necessity to draw these highly talented executives into these positions of running large companies. These men and women can probably do any number of things to make the same amount of money (or more) rather than be the one responsible for the helm of a modern multinational corporation.

The likelihood of a CEO getting fired is extremely high in just about every CEO posting when compared to other careers and positions. When a company brings a new CEO in from outside, it is usually done when they are in a tight spot financially. In some cases, companies are trying to restructure to survive. This is why the position is being filled, a CEO left or was fired.

So, we must keep in mind that taking a CEO position is often a high-risk situation. The pay is high for this reason, in addition to the fact that the company wants to attract hard-to-find talent. The severance agreements are high to encourage CEO risk-taking. If the penalty for being fired was high (i.e. no severance), any CEO would be tempted to stagnate and play it conservatively so they can continue to receive a salary and possibly stock options. The problem with that, is conservative CEOs often run into trouble with the company because risk-taking involves pursuing new ventures and initiatives that are necessary for growing the business. With stagnation, the CEO will lose stock options and other bonuses from a loss of performance and company profitability, but they will still have their salary. But they will likely get fired. In this case, everyone loses.

By having high salaries, bonuses, and severance packages, a company can remain competitive in being able to attract risk-taking and talented executives into a CEO position that is, by all means, not intended to be a long-term contract in and of itself. It is all about performance.

That said, it is also important to note that the disparity between CEO compensation and employee compensation is more market-based than it is based on bad practices. Companies also realize that to remain competitive with employee talent, they need to have compensation that is competitive within their respective industries. But this is another issue.

What about minimum wage? Well, where does it exist? Mainly in the service sector, such as retail, entertainment, and food services. The raising of the minimum wage is a necessity depending on economic indicators. It is a challenge that many companies need to deal with, and to suggest an easy solution is idealistic, as this is also something that is market-based. If they hadn't raised minimum wage when I had first started to earn one back in the early '90s, minimum wage earners would still be making CDN$4.55 per hour in Ontario today.

Try living on that.
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Last edited by Baraka_Guru; 07-28-2008 at 07:49 AM..
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