During my callow youth, every morning as I got off my bike at work, I would see the notice, ‘Parking reserved for CEO’ . A beauty of a car stood there attended by a driver. I remember thinking that since a driver dropped the CEO, why was not that precious space left for lesser mortals like us. The CEO also occupied a spacious room which I reckoned was bigger than my house, not to forget a stylishly dressed secretary who seemed to do most of her work. Seemed like the CEO usually came before us and was the first to leave office.
All this didn’t bother me much till I discovered what her salary was from a newspaper report! I thought ‘My Lord, at the salary she is paid, we could employ 100 people like me.’
This is how I thought for much of my life. To say that CEOs are overpaid, I think, is nothing but pure jealousy. Some have even come up with formulas as to how the salaries should be in a certain median compared to the rest of the staff in the organisation.
Oh! Come on! Do you really know what it takes to become a CEO in the first place and then to survive? In spite of all the distractions the board, employees, customers, media, press, regulations, family throws at them, some CEOs excel in their roles. Why on earth then wouldn’t you want to pay them well?
Now, can we examine how a CEO’s salary reaches envious levels? Let’s say he starts with Company X, works there for few years, and after that hops on to a larger role at his competitor. This loop gets repeated and then he reaches a leadership role with his nth employer. It’s quite natural that his salary would be at a certain level after a couple of decades. When you want to attract a guy like that you also need to pay him more than his current salary. If you are desperate then you must stretch a little beyond to get the talent. Everyone who wants to hire a CEO knows the risk, hence pays higher. Leaders who want to be CEOs equally measure the risk and quote higher pay packets and get them. It is a simple supply and demand equation.
Once you have hired a CEO, you can’t complain about his salary unless he is under-performing. We all know under-performance only has one result – exit. Any official discussion/comments by the board or colleagues after hiring a CEO at a certain salary is not only unprofessional but also hurts the company faster. To reach a CEO’s position one almost spends two decades, so it’s an organic, incremental financial journey; it is a high-pressure job which has detrimental consequences for the CEO’s personal life and health, an impact which goes unmeasured. It’s also the riskiest role in terms of legal and statutory liabilities, not to forget the personal financial risk if they get fired. On an average it takes over a year plus to find an equivalent job if they are lucky. Not sure if it’s easy to find one if the next employer is aware of the termination.
Think of a CEO’s job, where a million people are watching. The CEO must be seen everywhere, dress well, smile, have energy all the time, be punctual, say the right things, not cause a PR problem, be most eloquent whether with colleagues, customers or on stage with celebrities and competitors, and not to forget, be humble at the same time. With all this perfection in sync with the organisational values they also need to deliver quarter on quarter results! How on earth is this possible? First, we need to ask our scientists to write algorithms with all these impeccable traits and clone them at the gene level for CEOs to be produced in great numbers. Only then we can generate the best CEOs in huge volumes which can whittle the salaries for the next generation.
If human beings need to live up to the expectations of the stock market, board, employees and customers in a volatile, uncertain, complex and ambiguous world, CEOs need to be paid exceptional salaries, even if it is unpalatable to some of us for our own selfish reasons. I don’t want to repeat that aphorism about what you get when you pay peanuts!
The CEO always drowns alone, so pay him for the risk to keep himself afloat.