Stephen Young's Online Journal

Executive Compensation: Why the best should be paid the best

The drama with Enron and World Communications in 2001, unveiled a cover on the travesty of exuberant executive compensation existing universally throughout large corporations within the financial industry. According to the article, "Getting a Grip on Executive Compensation" by Eric Krell (an article read within out MGMT 250 class), it was proven that in the financial services industry, CEO's were being paid an average of $11,936,000 a year. At the same time, the average employees of those companies were being paid less than .5% of that amount. In the pharmaceutical industry, the executive compensation average is a lot less (averaging around $1 million).

Although there are some exceptions to that norm: William C. Steere, Jr., Pfizer's Chairman, who made $40.2 million and C.A. Heimbold, Jr., Bristol-Myers Squibb's Chairman and CEO, who held $227.9 million including stock options. I think everyone would agree that this is way too much for any person to be paid for any job. However, most people would be horrified at what these men are doing, while I respect what they are doing and I think they are playing the game perfectly. The objective of a CEO is: to effectively produce a product, keep the company running efficiently, and to ensure the happiness of the consumers and employees.

From a Business Prospective:
These CEO's have accomplished all those goals, with enough money left over. If the employees are working efficiently at the wages they are being paid, then there is no reason to pay them any more money. These CEO's have also played the supply and demand model to an exact science. They are aware that their products are at an extremely high demand, so they can charge a colossal amount. As long as the consumers pay for it, they can charge it. They are maximizing their profits just like every single businessman tries to do, except they are doing it better and more efficient and are getting criticized for doing it. Don't fault the CEO; fault the non-competitive industry that allows this business practice to exist.