A CEO’s salary depends on a variety of factors like the organization’s financial success, profit, market value, the financial sector of the organization, the number of employees, and the overall scale of the organization. In some organizations, a CEO’s salary is 300 times bigger than the average employee’s, so it is safe to say that a CEO can earn ten times more than the highest-paid employee. As Mongan pointed it, CEOs of systems with more than 1 billion revenue count salary almost two times bigger than the CEOs in companies bringing less than 100 million dollars (2017, p. 4). In addition to the question, one could say that in companies with over a billion dollars in revenue, CEOs could earn ten times more than the highest-paid employee. The other question is if companies should spend 10-30 percent of revenue on CEO salaries if their obligations do not exceed the highest-paid employees. In my opinion, if the CEO’s direct responsibilities could be measured to be ten times bigger than the highest-paid employees, then the difference in salary is justified.
Michael Bruno could try to low-ball John Smithson if there is a need for a small raise for all the employees of Company XYZ. However, if a company could use a raise, the company should rethink its concept of CEO salary. In this case, the previous CEO worked for 25 years in the company and was terminated because of tolerating low performers. If the mismanagement issues were big to the point of terminating the CEO, the company should face some management changes to end low-performance issues. In addition, the concept of the ‘golden parachute’ could be demotivating to the CEOs as they know that if their actions could lead to their termination, they have a golden parachute to rely on. Wighton (2007) points that the CEOs’ bumper packages tend to rise with the organization’s overall performance. Still, the increase of the parachute did not motivate the old CEO enough, as Taylor (2009) emphasized that the salaries may be increased, but they never reduce. The whole concept of the ‘golden parachute’ is not objective and effective in motivating the CEOs.
Michael Bruno could low-ball John Smithson and explain that the company needs the funds to provide proper working. The best way to do this, in this case, is, as Peterson (2015) described, to exclude the negotiations with a candidate and make a precise, fair offer for Smithson. The proposal could also state that the ‘golden parachute’ rules only apply when the organization functions properly to motivate the candidate.
Michael Bruno needs to research the CEO salaries in the field of the economy that fits the activity of Company XYZ. The best decision, in this case, is to learn more about the relation of the companies’ revenue to the CEO salary in the particulate economic field by researching competitor companies’ CEO salary. For additional information, Bruno may use the Highest-Paid CEOs chart on companies from Russell 3000 index or S&P 500. By then applying the same ratio to Company XYZ’s revenue, Bruno would be able to calculate the average salary and extract the funds needed for the raise. Discussing a salary cap might be demotivating for the candidate, so the only case where Michael Bruno should bring it up is if the analysis shows that the company potentially cannot afford CEO’s salary.
In my opinion, the CEO’s salary should be based upon factors and be fair both to the employees and the CEOs. The salary should be mathematically correct in terms of the salary’s relation to the company’s revenue. The compensation should be competitive among the competitors, but it should also address the company’s ongoing issues, as the CEO’s salary accounts for 10 to 30 percent of the revenue. CEO’s salary 300 times bigger than a regular employee’s is justified because the CEO’s salary relates to the organization’s performance as a whole and not with the individual’s employee performance.
References
Mongan, E. (2017). Multi-facility CEO salaries on the rise. McKnight’s Long – Term Care News, 38(4), 4.
Peterson, A. (2015). If Reddit wants to fight the gender pay gap, it should disclose everyone’s salaries. Washington Post. Web.
Taylor, M. (2009). Super CEO salaries on the rise. Super Review. ProQuest One Academic. Web.
Wighton, D. (2007). Goldman Sachs CEO nets $68.5m salary. Financial Times. Web.