Is your CEO salary excessive?
Dan Price’s decision to pay a $70,000 minimum wage went viral in 2015. His decision came after an employee, Jason Haley, pointed out to him the disparity between Price’s CEO salary of and his own. At that time, Price was paying himself $1.1million and Haley was on just $35,000.
With some soul-searching Price gradually began to raise the salary of his employees, and finally came to a decision to create a minimum salary across the board for everyone in his company of $70,000. Price resolved to meet the costs of the increases from his own salary, reducing it to $70,000. A significant commitment.
A fierce debate
Following Price’s actions, a fierce debate was sparked. The debate veered from the extremes of labelling Price a “Modern Day Robin Hood,” inspiring many other business owners to review and increase salaries. To Price being branded as “publicity-seeking” and his strategy a massive failure.
However, some research at the time bore out Price’s instincts about redistributing his wealth. The study of over 1000 employees, undertaken by CIPD (Chartered Institute of Personnel Development), the professional HR body in the UK, entitled “What Employees Really Think about Their CEO’s Pay Packet” reported some interesting findings.
Transparency and proportionality of CEO pay
While some 63% of employees surveyed believe the success of the organization is dependent on the CEO…
- almost half of the employees surveyed considered their CEO’s pay is simply too high and
- only 32% of employees who responded think CEO’s are paid in line with performance.
- 74% of employees consider the ratio of CEO pay is relevant, and around 34% thought it should be less than five times an average employee’s salary.
- 72% would like to see more transparency around pay, and around half want that transparency at all levels in the organization.
The Impact of Excessive CEO Salary on Employees
Alarmingly the study described the impact of current CEO pay levels as “far-reaching”, in that:
- some 71% of respondents consider CEO pay levels in the UK are generally too high
- 64% of employees disagree that CEO pay levels inspire employees to work hard and
- 60% agree that CEO pay levels in the UK de-motivate employees
- 54% agree that CEO pay levels in the UK are bad for an organizations’ reputation
One of the most sobering results is the ratio of people who think CEO’s pay levels are de-motivating. If some 60% of employees are demotivated as a result of the disparity between their own and their CEO’s salary brackets, this can have a significant detrimental effect on performance.
While no-one is suggesting CEO pay should be brought in line with the minimum salary in the way Price has demonstrated, the research calls for a number of solutions to be considered by businesses to raise confidence in CEO pay levels by:
· Publishing the ratio between CEO and a typical employee;
· Limiting the size of CEO bonuses and incentives
· Requiring CEO’s to repay bonuses and incentives where performance dips