Is Business Broken? Why are Executives Paid So Much?
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Feb 20, 2025 Charles Tharp, a leading business professor and former CEO, dives into the contentious world of executive compensation. He explores how CEO pay has ballooned compared to average worker salaries and the factors fueling this disparity. Tharp discusses flaws in governance that allow such massive paychecks, including shareholder skepticism and the implications of legislation like Dodd-Frank. He also highlights the impact of stock buybacks on executive pay and suggests strategies for enhancing worker earnings through education rather than just targeting executive pay.
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Contentious Compensation
- CEO pay is high, with median S&P 500 CEO pay around $15 million.
- While a market for executive talent exists, whether it justifies such high pay is debatable.
McDonald's CEO Pay Ratio
- In the 1980s, thinkers like Peter Drucker suggested CEO pay shouldn't exceed 20 times the average worker's salary.
- Today, the McDonald's CEO earns over 1,200 times the average worker's salary, highlighting a significant increase.
Size Matters for CEO Pay
- Comparing CEO pay to other employees is difficult due to different markets and skill sets.
- Executive compensation is largely driven by organization size, with bigger companies paying more due to complexity and scope.