Arguments Against Excessive CEO Pay

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Although the arguments in favor of keeping high chief executive officer pay are compelling, the research all points to one simple idea: CEO compensation is excessive and out of control, the pay gap must be lowered. The famous philosopher Plato once said, “in a community the earning[s] of the highest paid person should not exceed those of the lowest paid by more than five times” (Walters, Hardin and Schick 228). This is not the case in today’s world. Glassdoor reported that CEO’s made about 204 times more than their employees, CEO’s made on average over $13.8 million per year and their subordinates averaged only $77,800 per year (Chamberlain). This vast difference in pay ratios lead one to comprehend the moral injustices that plague our nations …show more content…
The firms returned 10% less to their shareholders than did their industry peers… the more CEOs were paid, the worse their companies did” (Adams). These facts support the case against excessive CEO pay, yet, it is still vital to identify the causes of the negative performance.

It was mentioned previously that the self-serving bias of the CEO is beneficial to the company because he or she has a large stake in the organization. However, the economic efficiency argument points out a major flaw in this line of thinking; excessive CEO compensation can “consume the resources of the firm and result in higher unit average costs for the production of goods and services” (Carr and Valinezhad 86). By saying that CEO’s can effectively manage when they are focused on increasing their own profits, one is neglecting the fact that not all executive officers are morally sound. Michael Cooper of the University of Utah’s David Eccles School of Business conducted a study that concluded “CEOs who get paid huge amounts tend to think less critically about their decisions…they ignore dis-confirming information and just think that they’re right” (Adams). In some cases, the power gifted to the executives by the company results in unethical practices.
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It was found that “bigger pay gaps between CEOs and workers had a measurable adverse effect on product quality” (Whelton 18). The main stakeholders in any company are its workers. If they are not treated with justice and shown respect regarding the legitimacy of their power, employees will experience a high level of job dissatisfaction. Russell S. Whelton would support this claim due to his findings that “high CEO pay contributes to higher subordinate turnover, lower job satisfaction, and lower quality products” (Whelton 18). The dissatisfaction that subordinates feel is caused by the inequality that circulates within the organization, and will lead the company to

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