Most C.E.Os are paid highly but the amount that a C.E.O is paid may be justified or not. The key criterion to determine the level of pay of a C.E.O is to measure his contribution and evaluate if it warrants his level of pay. However, it is not easy to determine the output of the C.E.O as he is involved in many activities that he directs and delegates to other employees in the firm. Thus increase or decrease of profit levels and financial strength of the firm are the most appropriate parameters to evaluate the productivity of the C.E.O. If the firm is doing well under the C.E.O direction and the resulting wealth creation for the shareholders is substantial then it is only fair that the C.E.O shares part of the profits in terms of bonuses and a high salary which would not make him overpaid. On the other hand, if the business is struggling financially then it is only logical that the C.E.O receives a low income so as to cut down on costs and boost the chances of survival for the business though caution should be taken to ensure that the level of pay is enough to keep the C.E.O sufficiently motivated. Even though it is not unethical, it is morally wrong for a C.E.O to receive a high salary if he is not running the business successfully. Therefore C.E.Os are not overpaid irrespective of how much they earn as long as their respective firms can afford and their contribution toward the firms’ success is significant and can be directly attributed to their leadership.
The various shareholders have a right to set the salaries of their top management staff as long as the ethics of good corporate behavior are adhered to. The shareholders may leave this task to the board of directors who represent their interest as long as there is no conflict of interest between whom the board of directors favors between the shareholders and the top management. However, this should only happen if all the requirements of relevant statutes and guidelines are met. This right should not be absolute and should be complemented by legislation so as to ensure the top management does not fraudulently or otherwise influence the board of directors to increase their pay without merit or sufficient involvement of all stakeholders. These laws and guidelines should be able to detect and prevent unjustified high pay to the top management of the firm but should not set a ceiling as to how much a C.E.O may earn so as to allow firms to attract and hire the best possible management team that could steer their firms to more success and usually these successful managers are paid highly. These laws should also bear heavy penalties and severe punishment to C.E.Os that are found guilty of breaking them so as to discourage them from engaging in fraudulent activities as Jeffrey Sonnefeld of Yale School of Management articulates in the video.
Leaders’ success or failure should be determined by how successful the businesses they run are. This is because they are charged with the task to oversee every project or activity that the firm engages in. Thus they have the power to make necessary recommendations or adjustments to ensure the success of all the major projects to ensure the success of the firm irrespective of the condition of the external environment.