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rough draft of research paper
(paper had to fall under career category "Business Administration," but did not necessarily have to be related to the project)
Are CEOs and Other High-Ranking Officials Overcompensated by Companies?
Woodstock High School
Table of Contents
Too Much Money4
The Campaign: A Call to Action6
This paper explores the amount of money American corporations compensate Chief Executive Officers (CEOs) and other high-ranking officials. Note: for the sake of brevity, this paper refers to both Chief Executive Officers and top tier personnel with alternate job titles (such as President or Managing Director) as “CEOs”. The essay argues that CEOs are overpaid. Furthermore, the paper investigates possible solutions America can take to limit the salaries of CEOs. Critiques to each solution are offered.
In 1965, Chief Executive Officers (CEOs) of major American corporations made about 20% more than the average employee did. That percentage gradually increased over time, but had only increased to 60% by the year 1990. The next decade saw unprecedented growth. CEOs made approximately 300% more than the average employee by the year 2000, and that number has held steady to present day (Hartung, 2015). Today, the average American CEO makes $13.8 million, compared to the average median worker pay, $77,800 (Glassdoor, 2015). CEOs certainly make a hefty sum of money—this concept is undisputed by Americans of all socioeconomic backgrounds. What remains up for debate is whether the investments CEOs provide for their respective companies are worth the total payout, how much money is too much money, and the methods by which CEO pay should be regulated (if at all). Unfortunately, there are no easy answers to these questions as solutions are diverse and often divided along political lines.
Too Much Money
The amount of money CEOs take in annually is unprecedented. ABC News recently reported that CEO of Wal-Mart Stores, Inc., C. Douglas McMillon, made more money in one hour than the typical Walmart employee would earn in one year (Gomstyn, 2010). In many cases, CEOs have lost sight of reality by growing accustomed to earning gigantic salaries. Many CEOs argue that the work they have put in is deserving of such a high salary. These CEOs claim that the company would not have grown or would have even fallen apart without them. However, these arguments ignore the countless individuals who work alongside the CEO. Compare a CEO to the President of the United States. The President leads the country as the Commander in Chief. He serves as the leader of the United States, signs bills into laws, works with federal agencies to carry out laws of Congress, meets with representatives from other nations, and so on. Even with all of the President’s responsibilities, the well-being and success of the United States is not dependent on the President. All government personnel, members of the bureaucracy, and really, all US citizens, influence how successful the country will be. In a similar way, a CEO can lead a company, but a company’s success is not solely dependent on his or her actions. Now consider this: the President of the United States is paid $400,000 annually (or $569,000 including benefits)—less than 5% of what the average CEO makes (Wesley, 2013). Is the leader of the free world truly worth only 5% of the average CEO?
A study by Stanford University found that 74% of Americans believe that CEOs make too much money. However, this same survey reported that Americans are not sure of the best way to cap salaries (Lynch, 2016). Solutions range from government regulation to union intervention. Unfortunately, no solution is the end-all be-all, as each proposal brings its challenges and has been met with opposition.
In October 1991, Bill Clinton announced his candidacy for the presidency. Among his major platforms was a proposal to limit what he referred to as “excessive executive pay.” President George Bush had previously vetoed a bill that would limit the deductions companies with highly paid executives could achieve. (President Bush justified this veto by citing concerns of government overreach.) When President Clinton signed his first budget into law, a new provision within section 162(m) called for similar limits Bush had vetoed only a few months earlier (Matthew, 2012). President Clinton fulfilled a campaign promise, but his vision to limit executive pay would fall flat. The new provision contained several loopholes that allowed major corporations to ignore many of the rules it had created. Even the sections of the law that were enforceable seemed to generally be ignored—many corporations were fine ignoring the law and paying a penalty. The law required certain companies to report executive salaries, in hopes that public outcry would force a reconsideration of executive pay. However, there was little public response when corporations began publishing their respective executives’ salaries. No progress had been made because companies were too attached to their executives to question a reduction in salary, and when George W. Bush was inaugurated in 2001, new legislation was quickly passed that nullified these Clinton-era policies.
Using legislation to force companies to limit CEO pay is simply unpractical. Corporations will always find a way to avoid government interference. They will seek loopholes to legally avoid political polices. Besides, even if corporations somehow decided to follow all laws, over half of Americans believe that the government should stay away from this sort of regulation (Lynch, 2016). Any such legislation is bound to fail without the support of the American people.
The Campaign: A Call to Action
If legislation is not the best way to limit CEO pay, what is? Although it may seem like an unrealistic solution, the American people must convince corporations that uncapped executive pay is not a responsible way to conduct business. This fight will not be easy. Few companies will be inclined to cap pay for fear of losing executives to other corporations. Therefore, the strategy must be to rally companies together. Furthermore, CEOs themselves also must acknowledge this issue and willfully accept action. The only way to accomplish this will be a well-fought campaign. Such social action will not be easy, but as George Bernard Shaw once said, “Progress is impossible without change.”
Corporations pay CEOs a tremendous amount of money—money that could be better spent. While executives are certainly valuable assets to the organizations they serve, they are not worth the millions of dollars they are compensated. Because government action will cause little change in the amount CEOs are paid, the American people must lead the call for a change. Executive salaries will only shift when the people act as a united front.
Davis, A., & Mishel, L. (n.d.). CEO Pay Continues to Rise as Typical Workers Are Paid Less. Retrieved from http://www.epi.org/publication/ceo-pay-continues-to-rise/
Gomstyn, A. (n.d.). Walmart CEO Pay: More in an Hour Than Workers Get All Year? [Newsgroup post]. Retrieved from ABC News website: http://abcnews.go.com/Business/walmart-ceo-pay-hour-workers-year/story?id=11067470
Hartung, A. (n.d.). Why CEOs Make So Much Money [Newsgroup post]. Retrieved from http://www.forbes.com/sites/adamhartung/2015/06/22/why-ceos-make-so-much-money/#cd11e7d12a3f
Here’s How Much More CEOs Earn Than Their Employees. (n.d.). Retrieved November 8, 2016, from https://www.glassdoor.com/blog/heres-ceos-earn-employee/
Lynch, S. (2016, February 17). Are CEOs Overpaid? [Newsgroup post]. Retrieved from Stanford Business website: https://www.gsb.stanford.edu/insights/are-ceos-overpaid
Matthews, D. (n.d.). Bill Clinton tried to limit executive pay. Here’s why it didn’t work. Retrieved November 8, 2016, from https://www.washingtonpost.com/news/wonk/wp/2012/08/16/bill-clinton-tried-to-limit-executive-pay-heres-why-it-didnt-work/
Sloan, A. (n.d.). The Executive Pay Cap That Backfired. Retrieved November 8, 2016, from https://www.propublica.org/article/the-executive-pay-cap-that-backfired
Wesley, D. (2013, April 19). The Presidential Paycheck - Where Obama Gets His Money. Retrieved from https://www.creditloan.com/blog/the-presidential-paycheck-where-obama-gets-his-money/
Running head: ARE CEOS AND OTHER HIGH-RANKING OFFICIALS 1
ARE CEOS AND OTHER HIGH-RANKING OFFICIALS 8ed a campaign promise, but his vision to limit executive pay would fall flat. The new provision contained several loopholes that allowed major corporations to ignore many of the rules it had created. Even the sections of the law that were enforceable seemed to generally be ignored—many corporations were fine ignoring the law and paying a penalty. The law required certain companies to report executive salaries, in hopes that public outcry would force a reconsideration of executive pay. However, there was little public response when corporations began publishing their respective executives’ salaries. No progress had been made because companies were too attached to their executives to question a reduction in salary, and when George W. Bush was inaugurated in 2001, new legislation was quickly passed that nullified these Clinton-era policies.
Sloan, A. (n.d.). The Executive Pay Cap That Backfired. Retrieved November 8, 2016, from http