It is fashionable today to bash Big Business. And there is one issue on which the many critics agree: CEO pay. We hear that CEOs are paid too much (or too much relative to workers), or that they rig others’ pay, or that their pay is insufficiently related to positive outcomes. But the more likely truth is CEO pay is largely caused by intense competition.
It is true that CEO pay has gone up—top ones may make 300 times the pay of typical workers on average, and since the mid-1970s, CEO pay for large publicly traded American corporations has, by varying estimates, gone up by about 500%. The typical CEO of a top American corporation—from the 350 largest such companies—now makes about $18.9 million a year.
While individual cases of overpayment definitely exist, in general, the determinants of CEO pay are not so mysterious and not so mired in corruption. In fact, overall CEO compensation for the top companies rises pretty much. In lockstep with the value of those companies on the stock market.
The best model for understanding the growth of CEO pay, though, is that of limited CEO talent in a world where business opportunities for the top firms are growing rapidly. The efforts of America’s highest-earning 1% have been one of the more dynamic elements of the global economy. It’s not popular to say, but one reason their pay has gone up so much is that CEOs really have upped their game relative to many other workers in the U.S. economy.
Today’s CEO, at least for major American firms, must have many more skills than simply being able to “run the company.” CEOs must have a good sense of financial markets and maybe even how the company should trade in them. They also need better public relations skills than their predecessors, as the costs of even a minor slipup can be significant. Then there’s the fact that large American companies are much more globalized than ever before, with supply chains spread across a larger number of countries. To lead in that system requires knowledge that is fairly mind-boggling.
There is yet another trend: virtually all major American companies are becoming tech companies, one way or another. An agribusiness company, for instance, may focus on R&D in highly IT-intensive areas such as genome sequencing. Similarly, it is hard to do a good job running the Walt Disney Company just by picking good movie scripts and courting stars; you also need to build a firm capable of creating significant CGI products for animated movies at the highest levels of technical sophistication and with many frontier innovations along the way.
On top of all of this, major CEOs still have to do the job they have always done—which includes motivating employees, serving as an internal role model, helping to define and extend a corporate culture, understanding the internal accounting, and presenting budgets and business plans to the board. Good CEOs are some of the world’s most potent creators and have some of the very deepest skills of understanding.
26. which of the following has contributed to CEO pay rise?
A. The growth in the number of cooperations
B. The general pay rise with a better economy
C. Increased business opportunities for top firms
D. Close cooperation among leading economics
27. Compared with their predecessors, today’s CEOs are required to__.
A. foster a stronger sense of teamwork
B. finance more research and development
C. establish closer ties with tech companies
D. operate more globalized companies
28. CEO pay has been rising since the 1970s despite__.
A. continual internal opposition
B. strict corporate governance
C. conservative business strategies
D. repeated governance warnings
29. High CEO pay can be justified by the fact that it helps__.
A. confirm the status of CEOs
B. motive inside candidates
C. boost the efficiency of CEOs
D. increase corporate value
30. The most suitable title for this text would be__.
A. CEOs Are Not Overpaid
B. CEO Pay: Past and Present
C. CEOs’ Challenges of Today
D. CEO Traits: Not Easy to Define