Top chief executives are being paid up to 50 times as much as their average employees – and the gulf between boss and worker is widening.
The first annual survey by BusinessDay of pay rates at NZX-listed companies also found that the best-paid boss was receiving more than $4.7 million.
A workers’ representative has dubbed the widening pay gap the “moral question of our time”.
I’m in favor of much higher taxes for these high income earners – but we’re still a capitalist economy, and companies can pay their CEOs as much as they like.
The question is: are these people worth it? Some clearly are. Apple is now worth more than all the European Banks combined. Whatever they’re paying Steve Jobs, it’s worth it. But is Paul Reynolds worth $4.7 million dollars a year? Here’s Telecom’s share price for the last few years, the black line indicating when Reynolds took office:
This is actually pretty typical – plenty of academic studies show that large companies run by over-compensated CEOs under perform, and that the CEO labour market is broken:
The [Stanford] study, which reviewed CEO pay and economic performance between 1991-2002, found that in small firms, highly paid CEOs generally are more skilled than their industry counterparts. The correlation is even stronger if the firm has a large shareholder or if the CEO has been paid largely in stocks and options. Conversely, pay is more likely to be negatively related to skill in larger firms. “In many large firms, the highest paid executives actually performed the worst,” said Daines.
This was especially the case when the business was bound by what Daines called “environmental constraints”: regulations, limits on capital spending, or a very competitive climate. “Some CEOs have a lot of options to consider while making investments and other strategic decisions. Others are more constrained,” Daines said. The lesson there? “When managers can do less to affect firm outcomes, there’s less reason to pay them high salaries,” said Daines.