The high salaries paid to CEOs are not justified. To what extent do you agree with this statement - Essay Example

The high compensations are in the forms of high salary, bonuses or stock plans. The performance of the CEO has no quantifiable effect on corporations’ performances as the remuneration has little or no effect on the performance of the CEO (Lys, Rusticus and Sletten, 2007). As mentioned above, the only quantifiable effect is the widening gap between them and the other management people on whom the CEOs depend to produce positive performance of the company. In an article in Business Week, during the 1980s the average pay of a CEO was 42 times more than the hourly wage paid to a worker (Finch and Bowers, 2009).

As the business entered the 1990 era, this multiplication grew to 85 times more than average hourly pay of a worker which reached the astonishing height of 531 times in 2000 (Finch and Bowers, 2009). What caused this hike in the salary of the CEOs and was this hike justifiable? This question remains unanswered to this day although many studies have been carried out on a link between CEO performance, company performance and the pay scale. Researchers such as Daines, Nair and Kornhauser (2005) tried to define measurements for CEO skill.

They wanted to isolate the specific factor for CEO competence that can be used to justify the compensation and company performance. According to Daines, Nair, and Kornhauser (2005), the performance of any corporation does not depend only on the CEO skills or performance but also depends on other factors such as the economy, regulations, and conditions of the industry and so on. They hypothesized that a company managed by a skilled CEO should be performing better than the competitors in its industry.

This hypothesis is based on the belief that if a company is managed by a poor CEO, the company’s performance will be poor and vice versa. The results of this research were informative. The economic performance and CEO salaries for the years 1990-2002 were studied which showed that small business