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Why do CEOs Make So Much Money?

CEOs are well compensated because they oversee the management of their entire organization.
One reason CEOs are well paid is because they are the individual who is ultimately held responsible for an enterprise's success or failure by shareholders and other investors.
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  • Written By: Michael Pollick
  • Edited By: Bronwyn Harris
  • Last Modified Date: 10 July 2014
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Whenever news of a corporate meltdown or scandal breaks, many people are astonished to learn exactly how much the chief executive officer or CEO of that company actually earns. While the company itself may be in serious financial straits with its employees and/or investors, the CEO often escapes with a healthy severance package, known as a golden parachute, and begins work with another company within months. Many people wonder why CEOs make so much money, and the answer is not always clear.

One reason CEOs make so much money is the nature of the job behind the title. While most employees and supervisors understand their particular responsibilities for the company, a CEO needs to have a working knowledge of virtually every aspect of the company. This kind of knowledge is not gathered overnight, so an ideal CEO is someone who has extensively studied the industry as a whole and the inner workings of a specific company. A salary commensurate with this amount of expertise, education and vision may seem high to outsiders, but without a dedicated CEO at the top, the company could easily lose its focus.

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Another reason CEOs make so much money is the business concept of paying for performance. Stockholders and other investors want to see their company remain profitable year after year, even when outside economic forces make it extremely difficult. CEOs who can successfully steer their companies through rough economic seas and still come out in the black are often rewarded with substantial performance bonuses and other financial incentives to insure their continued leadership and company loyalty.

There are some CEOs who technically earn little to no money in actual salaries. Because they already have considerable personal wealth, some CEOs ask only for a nominal annual salary for tax purposes. This rejection of a standard salary does not mean the CEO of a successful company such as Apple Computers or IBM will go penniless, however. CEOs often earn more money through profit-sharing plans, performance bonuses and patent or licensing royalties. By not accepting an actual yearly salary from the company, a CEO can appear to be motivated by other reasons beside personal gain.

While many CEOs do make so much money from their company's performance, they also understand their skills and business acumen are in large demand in the marketplace. Struggling companies routinely seek out talented CEOs with proven track records to help them avoid financial collapse. Because of this constant demand and short supply of qualified CEOs, many companies pay incredibly high salaries in order to keep their top executives satisfied. If a rival offers a company's CEO a significant raise in salary and benefits to jump ship, this offer may have to be matched or bettered in order to keep the CEO on board.

Overall, most CEOs make so much money because they have made numerous personal sacrifices over the years for the good of their companies and have earned the right to share in the profits. Some unscrupulous CEOs have no doubt exploited the system for personal gain, but for others the salaries they earn are commensurate with the responsibilities and risks associated with the ultimate corner office.

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Discuss this Article

anon955296
Post 19

I sit beside a CEO for a living, and at this point in my life, after interacting with large corporations, sitting in endless meetings,

dealing with employee problems and production, watching companies get raped from the inside, even being part of drunken

conversations where I've been told "Don't worry the company runs itself."

I've concluded we have got a massive underlying problem in our society and a stand will have to be made by shareholders to protect the future for our children.

anon351270
Post 18

The CEOs' compensation that is mentioned mostly come from publicly-traded companies. The shareholders get some of the blame for allowing these huge executive compensation packages.

I ponder what private (non-publicly-traded) companies pay in salaries, benefits, or other compensations to their CEOs. Does anyone know how I could find out? Or are such things a private matter in private companies?

anon323351
Post 17

I'm really glad to see people waking up to how corporate world really works. The boards of all public companies are one big, incestuous pool of narcissists. They all know that if they started to cut back executive compensation at one company, the whole lie about how indispensable they are would start to unravel.

It's ironic that by making executive compensation public, their pay actually increased! Does this mean they were previously "underpaid"? Heck no! It just means they all looked at who was paid the most and decided to all give each other raises. It's like our elected members of Congress. They might badmouth one another all day long, but when it comes to giving each other raises, there is no shortage of reasons for why they deserve them.

Board members are no different. They know that a rising tide lifts all boats, thus they keep inflating executive pay and before you know it, the companies where they are executives will do the same for them. Meanwhile, workers are told to be grateful they have jobs and sorry there will be no bonus or raise this year ("there's no money").

spikestuf
Post 16

When was the last time a CEO took up for their employees over the withholding of income taxes that no law says you have to submit to? Never, as far as I know. When was the last time a CEO took up for their employees instead of turning their wages over to a third party with no court order?

anon304323
Post 15

I know that I don't have the skills or experience to be a CEO and if someone hired me as one, the company and everyone's job would be gone. I'm not ashamed to admit this. Very few are qualified to be CEO's.

Why should I expect to make anything close to a CEO. I don't. I just expect him/her to to a good job running the company and keeping it profitable so that I can keep my job.

anon295538
Post 13

It's interesting that someone would say they pay CEO's so much is because they get the stock prices up and run the company. What about the employees?

One guy retired from United after 19 years and can barely use his promised passes since "active" employees go first. The video is online.

anon268906
Post 12

If a business isn't making money, it collapses. You need to attract someone that knows how to make money. How do you that? With money.

anon261776
Post 11

We are talking about money here, right? Of course we make too much. Wouldn't you help yourself out if you could? And this is 2012, so a million is not enough -- not even a billion. So go to work and buy me another house, mistress, car, vacation etc. I deserve it! After all, you don't have what it takes. You just don't know the right people.

Go to work sheep, pay double what your house is worth by the time you're 60, and dream of retirement that will never happen. You'd better feel lucky that I even gave you this life! We own this world and there is nothing you can do about it, simply because you are addicted to my eye candy!

Without stupid people like the United States has so many, you wouldn't have wealthy CEOs.

Stop buying the products. Just focus on the worst ones and the next month another. In the age of this world wide communication that we have, they should not have this much control! It's us, not them. You would do the same if in their shoes.

anon154030
Post 10

All the reasons given are valid. Yes, the CEO is very important and should earn more, especially good company performance, but that doesn't mean 1000 times more than the rest of the company employees. This is a blatant sign of the hubris these people have. They think they did it all by themselves.

The fact is, the company did so good because everyone (or most) did their jobs expediently. If that customer service rep does a poor job, customers are not going to come back and the company will suffer. If that IT guy doesn't keep the network or website up, the company will suffer. Yet, these people aren't getting million dollar bonuses. I find it funny how leaders always talk about teamwork, how important it is and how 'we couldn't have done it without the diligent work of all of you' well, then why does the CEO alone enjoy the fruits of the labor of all?

Lastly, why do they still get their bonuses and exorbitant pay when the company does not do good? If I don't do a good job, I don't get a good raise. Can you imagine what would happen to the little guy/gal if they lose the company a million dollars?

It is, like all things human a club. And when you're in the club, you make the rules. You get to decide that you are more valuable than everyone else. But, you cannot forget to spew the rhetoric on how important everyone is and give the little people a pat on the back while they get the pat on the wallet.

anon147560
Post 9

The empire of the wealthy is built on the back of the common laborer. Reality check please. No individual deserves such an unfair share. That leads to short sighted decision making that doesn't benefit the well being of all.

Global warming pollution, poverty, excessive debt, no health care, water pollution, environmental pollution, air pollution, quality of life dimensioned. The list goes on, but let's not let it. Reality check please.

anon111297
Post 6

It doesn't matter if a male ceo makes more than a women ceo. They are all overpaid and underworked. Most of them only care about what is good for them. That is why most will bail if made a better offer by a competitor.

MuffinMaker
Post 5

ilovejapan5- I agree with you that many women in business still make less than their male counterparts. However, it is impossible to know if male CEOs make more than women CEOs. First of all, there are way more male CEOs than women CEOs. You would need an equal distribution to be able to find an accurate average salary.

Additionally, many factors besides gender can play a part in how much money one makes. Things like education, prior work experience, size of the company and how long they have worked for the company can all affect earnings.

ilovejapan5
Post 4

I know that earnings between men and women is still unequal. Does anyone know if male CEOs make more than female CEOs?

ShowStopper
Post 3

anon103330- I disagree with you that most CEOs are out of touch with the common employee. Many CEOs receive daily updates on all aspects of the business. This includes information on what every department is doing, including lower-level departments and workers.

Most CEOs make it their business to know what is going on at all levels of the company. If they are so out of touch that they don't know what the common employee is thinking and doing, they are not doing their job very well.

anon103330
Post 2

How can you accurately attribute a percentage of a company's financial success or failure directly to the contributions of the CEO? Who is to say that the company wouldn't have performed just as well with a CEO who makes $200k as one who makes $2M? Or with no CEO?

At what point do we stop calling what CEOs do "talent" and start calling it "cronyism" or "the old boy network perpetuating itself"? Where is the line drawn? Who is the watchdog overseeing this?

And lastly, if the CEO is supposed to know about every aspect of the company, then why are executives usually so drastically out of touch with the hearts and minds of the common employee?

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