Comparison of Us Ceos and Ceos in Other Industrial Countries Essay
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Nowadays, more and more people question whether US CEOs are overpaid compared to CEOs in other industrial countries or if they are paid fairly and deserve a larger share of the wealth they helped their companies earn. With the development of a global capitalist economy, laborers pay in the free market is increasing continuously. However, CEO pay increase is not in alignment with the average US worker’s pay increase, as Garofalo pointed out, “In 2011, US CEOs in the Fortune 500 made an average of $12 million, about 380 times what the average worker makes.
This number increased from 343 times in 2010” (Garofalo, “Average Fortune”). When we compare the U.S CEO-to-worker ratio with other countries, the result is more shocking: In Japan, the CEO-to-worker ratio is 11:1; in Germany, 12:1; in Canada, 20:1, respectively. However, the U.S ratio approaches to 475:1 (Tampa bay Times). Are U.S CEOs really paid based on their actual performance? The answer is no. For example, from the article named “Introduction of GM”, the whole sale of GM decreased by 23% in 2008.
However, GM’s CEO pay was as much as 200 times what a common worker would have; while at Toyota, it was only about a twentieth of what a worker earned (Yglesias, “Comparative CEO Salaries”). In 2008, GM’s CEO had $14.4 million in compensation, but the pay of Toyota’s CEO was under $1 million in the same period (Joules, “News vine”). Another example is William Weldon, the CEO of Johnson & Johnson. In 2011, “J&J has been battered by 22 product recalls in 19 months because of the quality issues” (McIntyre, “American’s most overpaid”). The net earnings of J&J went down from 13.3 million in 2010 to 9.7 million in 2011. However, William Weldon still earned approximately 26 million in 2011, almost the same amount as his previous year (“JNJ| Income statement”). Some people believe that U.S CEOs are not overpaid, especially the good CEOs such as Steve Jobs. When Jobs returned to Apple as an interim CEO in 1998, the stock price was only $2.
However, because of his innovation, the products that he promoted such as iPhone and the whole i-series had brought Apple from near bankruptcy to extreme profitability. During the past 15 years, the growth rate of Apple’s stock price increased 235 times. Moreover, Apple’s annual revenue in 2012 reached $156.51 billion compared to $6.2 million in 2003 (Apple Inc.). Although Jobs only earned $1 annually, he held $5.43 million Apple shares worth $2.1 billion. Forbes estimated his net wealth at $8.3 billion in 2010 (“Steve Jobs”). Since Jobs had brought huge profits to Apple, he was considered worth the annual shares given to him by Apple as the company’s earnings were heavily based on his contribution and performance.
To resolve the problem that US CEOs are overpaid, audit by independent board members is an important measure to ensure proper executive pay policies. Human Resource needs to play a key role in the distribution of fair wages. As author Crisp suggested, “When recruiting a CEO, HR can build a track record of taking action on the performance and contribution” (Crisp, “Is HR living up”). While setting up the salary of a CEO, HR can take the records of the CEO’s previous performance and pay as a reference. This also requires HR to do a solid research and then develop realistic compensation plans. Promoting this approach is a big challenge for an HR executive, yet it is a good opportunity to compensate fairly relative to earnings and in the long run, corporate survival may depend on it!