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Why Ceos Should Get Paid Essay

434 Words2 Pages

Do CEOs really get paid a lot more than an average worker? Some economists say they have found many CEOs that are worth being paid as much as they are, but social scientists are now examining closely at the psychological effects of CEO’s pay on corporate life. Among them is O'Reilly, the Frank E. Buck Professor of Human Resources Management and Organizational Behavior, who has conducted a series of studies that try to explain CEO compensation, ranging from how corporate boards decide upon salaries to how social status figures in setting executive pay(@stanfordbiz, Graduate School). One of O'Reilly's latest researches with James Wade of Rutgers University and Tim Pollock of Pennsylvania State University closely researched how the CEOs salaries …show more content…

For example,in his research, he found that a CEO in a firm was overpaid by 50 percent, while the general managers were underpaid by 50 percent. "People have been trying to justify why CEOs get paid so much. What people haven't been looking at is the consequences of making a wrong decision — paying too much or too little” says O’Reilly. An overpayment can lead to an increased wage bill and that money goes to shareholders. An overpayment can also lead to turnovers at lower levels, such as the general managers. Although O’Reilly’s studies tracked only lower levels of senior management, the research suggested that the negative outcomes of CEO overpayment are likely to drop down. For example, O’Reilly says, “That this same psychological process can work in an automobile assembly plant." This shows when a CEO gets a huge bonus, but the company is not doing well and the average workers feel underpaid compared to the CEO. What can this likely impact on the CEO’s company? Workers can decrease their effort in their work, and increase allegiance to the union. O'Reilly even found that unequal pay cascades down all the way to the senior management from the

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