The CEO may be worth what he(she) is paid. New hires at a fast food restaurant are not worth $15.00/hour. That is why McDonald's (and others) have had to raise prices.
Boards of Directors approve CEO incomes. They have, as references, at least one income book that studies the CEO pay for all industries. I have read one myself when I was on a Board of Directors and we set up the CEO income for our industry. We did not have personal knowledge so we were able to buy books on this from a publication that is reporting on all industries all the time.
A Guide To CEO Compensation: Executive Compensation Structure In A Competitive Market: Ceo Salary Disparity Paperback – May 20, 2021
Pay for performance has taken on new meaning for many shareholders and boards of directors. When attacks on Wall Street banks ensued after large bonuses were paid post-bailout, quite a few shareholders felt cheated because taxpayer monies were directed toward senior executives’ pocketbooks rather than their own. The banks’ poor form also led to a resurgence of a true pay-for-performance mentality in corporate boardrooms. Never before have boards purposed to demonstrate credible oversight with respect to pay. In addition, the Securities and Exchange Commission (SEC) is placing more emphasis on risk oversight and the actions compensation plans motivate executives to take.
Given the increased attention to pay for performance, it is important for companies to understand that the key to successful compensation plans is not the amount of compensation. Rather, it is intent and design. Simply put: CEO pay should be designed to drive a company’s business strategy and create shareholder value.
This study examined the relationship between chief executive officers' (CEOs') compensation components, which consisted of salary, bonus, stock options, other compensation, stock awards, nonequity incentive plans, deferred compensation earnings, and total compensation, and compared them with the organizational performance elements of earnings per share, debt-to-equity ratio, revenue, and pretax return on equity.
Read more