Celebrity rewards

If we are happy to see film stars, rock stars and sports stars receive astronomical incomes, shouldn’t we also be willing to see ‘celebrity’ CEOs rewarded in a similar way?

This was the question posed in class for debate.

Should everyone be paid a minimum wage? Intuitively, it sounds appealing for me who feels strongly when I see old folks picking up used cans and cardboard boxes for recycling to make a few cents.

But here we are talking about people who are paid millions. And a reminder of a wikipedia post of a certain CEO of an American bank who paid $1,000 for a wastepaper basket. (Not with his own money.)

Arguments in favour of high salary for CEOs:

Companies that pay for high-priced executive talent usually get better results—and the money they pay these executives is a good investment.

The quality of a company’s CEO is the single biggest driver of its financial results. Since Bob Iger took over Disney in 2000, he almost doubled the company’s value, creating $50 billion in shareholder wealth. Steve Jobs did not persuade Tim Cook to take on a $1 salary, and many credit Tim Cook for successfully getting the iPads to the stores on time.

CEO salaries are rising because more companies realize the value of good CEOs, and their pay—much like contracts for top-tier professional athletes—is getting bid up.

Arguments against astoronomical salary of CEO

Star athletes generally have exceptionally rare skills that are honed over a lifetime of practice.

The rarity of that skill that drives the demand and value of their services. What is often lost in analyzing athlete compensation is the value creation that is tied to those rare skills.

People are happy to pay up to experience the best; and this is true in sports, music, literature and most other fields. Athletes command high wages because they are the centerpiece of both production and demand in multi-billion-dollar businesses.
Question is if the CEO has a rare skill like an athlete or if he is a coach in talent management, bringing the best out of his team. What about CEOs who bankrupt their companies?

Should we attribute those to external circumstances such as the economy or to the “pursuit of high risk, high returns” ventures?

The question is really about whether the skills of a CEO equally rare? In terms of leaders who are true visionaries, those skills probably are rare. Likewise, the ability to juggle the multiple demands on a CEO’s time, mediate between rivals and ultimately accept responsibility for the direction of a company.

CEOs are a synthesis of athlete and coach. Certainly there is a visionary aspect to almost every successful CEO, and not everyone is born with that ability. Likewise, some people are simply unable to cope with conflict or to make a high-stakes decision from multiple options. Those would all seem to be innate traits akin to a star athlete.

Like the performance of a star athlete, would a CEO be interested to invest in long-term capabilities building of the organisation rather than on-site personal brand-building behavior?

For this, perhaps a balanced score-card model on measuring performance would be a consideration.

Would you watch a performance if your favourite star is in it? Even if it bombs in the box office? Many would. Then some argue that the snapping of star CEO would guarantee box office in the eyes of stock analysts. Paying good money would seem worth it. What do you think?

Source:
http://www.investopedia.com/financial-edge/0611/should-ceos-be-paid-like-star-athletes.aspx

Nakervis, Alan