Thursday, February 14, 2013

High Pay or the Highway: It's tough being a CEO

CEOs have been the center of attention for some time now. In fact, since the beginning of the century when one debilitating fraud after another brought the economy to a point of no recovery. At issue is whether or not these executives are worth their price, which can run in the millions dollars. Their compensation is pretty steep, and depending on one's viewpoint, it boils down to whether they should continue to be compensated as they already are.

Many companies are taking heed of the rising distaste for executive compensation. There is talk of turning to performance pay, which means if a company's profits remains flat so should the executive's pay. Last year, James Dimon of JPMorgan had his compensation cut after a questionable investment went wrong. Naturally, this encouraged a chorus of supporters to voice their appreciation for holding him accountable.

But then, there is always that argument that executives such as Dimon carry a heavy burden and are worth their exorbitant price tags. They are running mega-corporations that span the globe operating in all sorts of risky environments. Not everyone can get the job done, so these superstars deserve their weight in pay.

Both arguments make good points, but it's worth noting that putting pressure on executives has both its benefits and setbacks. They know they're being monitored and that makes them accountable not necessarily to the bottom line, but to their stakeholders. Ethics becomes their first priority. The downside though, is it puts a lot of pressure on them to perform. This increases their likelihood of turning to shady decision making strategies to prove their worth.

And the pressure is there. In PwC's 15th Annual global CEO Survey, only 40 percent of executives were confident their companies would generate healthy revenue flows in 2012, down from 48 percent in 2011. Many of the chiefs surveyed were worried about the state of the global economy, especially in Europe. Twenty-five percent were concerned their companies wouldn't find the qualified candidates needed to enable future growth. Then there's the risk of operating strategically in global markets. The latest waves of terrorism, wars and market volatility can make or break a company, and this has executives worried as well.

It's not easy running a company when the stakes are so high, which is why executives are paid as they are. But they should still be expected to uphold fair business practices and keep the economy chugging along to future recovery. Unfortunately, this can only be accomplished when we chain their compensation to company performance.

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