Richard Warner Online

Hosting a TV show that features CEOs, I am always surprised at the number of them who say salaries of their peers have gotten out of hand. Certainly, most Americans agree. Larry Ellison, who founded Oracle, made $197 million over the past year is ranked as the highest paid US executive. With options and perks, the typical CEO earns about 500x as much as the typical worker. That compares to what CEOs earned in 1970: roughly 25x the pay of the typical worker. 

You’re seething, right? Outrageous! 

Well, maybe. This brings to mind a lunch I had recently with one of my valued employees. The topic: He wants to make more money (”We all do!”, to quote Sally Struthers) because his student loans are coming due. My advice was to expand his skill set.

I explained that people don’t earn salaries…jobs pay salaries. What it all comes down to is that his pay is based on how much revenue he means to the company. 

Which brings me to the pay structure of CEOs. Whether you’re seething or not, CEOs of large companies represent quite a bit more more than 500 times the revenue of the typical employee. Their salaries are justified based on what they contribute…as long as the company is performing. 

To me, the real issue is what happens when the company doesn’t perform. If the company’s performance is poor, the pay for that CEO should be cut in proportion.

As outrageous as Bob Nardelli’s performance has been at Home Depot and Chrysler, there are other CEOs who get it. Like AFLAC’s Dan Amos, who voluntarily reduced the perks of his employment agreement by millions of dollars this fall…without even being asked by the Board.