It is widely acknowledged that C.E.O.’s are paid handsomely. However the reasons for the high pay may not be what one thinks. A recent article outlines interesting views.

Chief executives’ have important roles in their company, as the success or failure lies in their hands. However, the reasoning behind C.E.O.’s high wages do not seem to be related to job requirements. Rather, companies are using higher pay to try and keep their C.E.O.’s from leaving. Furthermore, companies try to prevent their chief executives from ‘jumping ship’ by offering similar wages as their competition. This peer-group benchmark pushes wages higher and higher.

However, studies have shown “chief executives can’t readily transfer their skills from one company to another”  resulting in “relatively few chief executives land[ing] new top jobs elsewhere”. This is not commonly known and the typical notion is that C.E.O.’s will leave a company if the pay does not keep rising.

In order to deal with this situation, the common notion of keeping C.E.O.’s by raising their pay needs to be corrected. As well, companies should implement benchmarks. The directors in the company will need to set up a standard of pay, which will be extra work but worth it in the long run.

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