Why is it that CEOs today make 1000x more than their employees compared to how it was many decades ago?
CEO salary is an external identificator of the company culture and of the health of our society in general.
In the USA, current average total CEO compensation is likely to be 200–300 times bigger than that of an average production worker; the ratio was close to 60 in 1990.
This growth is a manifestation of the “free market” which is going out of control — not what Adam Smith and other classics predicted. Granted, many CEOs are high-performing managers, but there is no plausible explanation for this explosive compensation growth except for some individual marketing and political skills of the successful CEOs applied against the backdrop of the “free market” and “democratic society” going out of balance.
This growing gap between the average workers’ and CEOs’ compensation is destroying public trust and drives down the workforce engagement. Indeed, if a manger sees himself 300 times more important than his average worker, he should not be placed in charge of any serious business. It is adding to the widening gap between the rich and the poor, which inevitably leads to increased social tension.
Furthermore, the structure of executive compensation is not conducive to long-term development of the business and to sustainable development of our society in general. Eventually, this distortion will be eliminated — most probably under government pressure. Although the pressure is building up, supported by prominent scholars and authors (Henry Mintzberg here, and Dan Pontefract here), it is hard to believe that any change in this direction can be realistically initiated by the CEOs themselves or by their frontline workers.
Originally published at www.quora.com.