I often hear from my students (and many popular outlets) that CEOs (and business owners) are fat cats who make millions at the expense of their poor workers. This is an alleged problem with capitalism. They don’t deserve the ridiculous amount of money they make and they’re a bunch of selfish and greedy people. This group is getting richer while everyone else is getting poorer.
Let’s start with clarifying the facts about most CEOs in America. Not every CEO is Steve Jobs (who bring us things like computers that fit into our pocket). As would be expected, there is a pay gap between executives and those under them. The real gap the average CEO in 2013 is less than most realize. CEOs on average made $178,400 and the average worker made $46,440. The proportion of employee pay to corporate profit has been the same since the 1940s. The average raise they get each year is 1%. The high amount of compensation CEOs make is NOT at the expense of the average worker.
What accounts for the high wages of ANYONE versus other people? It is a matter of justice (and fair) to pay someone more, as even my children recognize, when that person has skills or ideas others don’t that are valuable. It also may be that two people with equal talents are paid unequally because one person has put in longer hours. As a matter of fact, those that make six figures or more often work a significantly higher number of hours (or have done so) and are sacrificing in other areas (like spending time with family).
Also, as recognized in free-market capitalism, people act for incentives. CEOs are given these in order to come run a business. They go to where they have the best incentives. The reason they’re hired is for their great ideas to maximize profits for a business. Whether they succeed or fail, they receive earnings and what has been stipulated in their contract. They get bonuses if they succeed, but even if a person fails, the individual’s contract binds the business to follow through with providing on their incentives that drew them in the first place.
Think of your average worker. If they’re given a bonus at the end of the year for high sales, we applaud it. Yet when the same thing is done for a CEO that succeeds, with the bonus being higher due to the greatly increased corporate earnings, we call foul. This attitude is called envy- a vice that is just as evil as the greed it allegedly condemns with high CEO or business owner salaries.
Here is a brief video that explains more:
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