Nothing ignites the anger and disgust of average employees and citizens upon discovering that the pay packet of a CEO is vastly inflated compared to the value they are perceived to add to a business. It is even worse if a business has performed poorly and a leader is pushed out the door with a ‘golden goodbye’ windfall payment.
The issue of CEOs’ pay is very often the first example used to demonstrate how out of touch the ‘elite’ classes are with the values of the average person. And studies show that big pay packets don’t necessary equal big performance. Why, we ask, do they need so much more money? Why do they think they deserve it? Why is the job worth that much compared to the average wage?
At the heart of the problem is a fundamental difference in what each party in the debate values.
For CEOs and the institutional investment community, the purchasing power of a salary package and whether it reflects the value of the job being done is irrelevant. A salary package is now about comparative value to peers and not about the dollar amount. And earning more than someone else, means more status and a place higher up the elite social totem pole.
The earners in this stratosphere are so far beyond worrying about providing the basics of life for that to be irrelevant to what has meaning in their lives. If you applied the notion of valuing these roles by the job being done, it would be hard to argue that a CEO of a global company in a particular field is exponentially more valuable than, for example, leaders of governments or a global humanitarian institution. But they are paid exponentially more. Money is the measure of status and social worth in that small, select group. Everyone else can eat cake.
When discussions about average or minimum wage earners are discussed, however, the debate focuses on ‘what is the job worth’ and ‘what can the business afford’, which is an entirely different value measure. People in this arena are worried about the ordinary issues of life like paying the rent or a mortgage, funding their children’s education, making sure they can afford healthcare. Businesses paying employees are worried about containing costs, meeting budgets and making a profit. Social status is secondary in the conversation.
And this is the point at which the disconnection occurs between CEOs, the institutional investors that support them and the rest of the world. The self-generated rhetoric that ‘we are worth it’ continues to widen the values gap as the general public watches as KPIs are not being meet and company value is destroyed.
It is heartening that institutional investors are starting to question CEO pay packets and reject more outrageous ones but a broader conversation needs to be had about what is a reasonable salary. These CEOs are answerable to their shareholders. The institutional investors may be the named shareholders but they are the intermediary managers of capital owned by you and me, through our retirement savings, regular investments and through sovereign funds held by government in our name.
The values of both the CEOs, the boards and the institutional investors need to be more closely aligned with the values of the real owners of capital, who live back here on the ground, and not in the stratosphere of social entitlement.