Good Question: Why Do CEOs Make So Much Money?
MINNEAPOLIS (WCCO) - On CBS's Face The Nation this past Sunday, Donald Trump once again made headlines.
He called CEO pay in the U.S. a "total and complete joke."
According to the Bureau of Labor Statistics, the average chief executive in the U.S. makes $180,000 per year. But narrow that pool to the S&P 500 companies and the average is closer to $14 million per year.
So, why do top executives make so much? Good Question.
"There is definitely a relationship between the size of the business you're managing and your pay," said John Spry, a managerial economics professor at the University of St. Thomas.
He said some of the dramatic rise in CEO pay over the last 30 years is due to companies becoming larger and more global. He also points to competition for a relatively small group of people.
"Part of CEO pay is the scarcity of people with a really good proven track record of managing a large corporation," Spry said.
According to an analysis by the Star Tribune, the top paid CEO in the Twin Cities is the head of Ameriprise Financial, whose 2014 total compensation was $97 million. The CEOs of United Health Group and Ecolab were second and third at $66 million and $47 million.
Spry said if CEOs of multi-billion dollar corporations can increase sales by just a few percentage points and decrease costs by the same, they could be worth billions of dollars to a company.
"I think CEOs are worth as much as the team that's underneath them," said one Minneapolis man.
Hamline Business School Professor James Hagen says part of the increase in CEO pay comes from relatively few people moving into a small group of jobs.
"They could not make less than they did before, so there's an automatic rationing up," Hagen said.
Most top CEO compensation packages are tied to performance bonuses, rather than salaries. Spry said he'd like to say changes in CEO pay that would reward chief executives who add more value than average.
"I personally think the worst CEOs are overpaid and the best CEOs, if anything, may be underpaid," he said.
