Outrage over CEO pay is widespread. With a typical CEO of an S&P 500 company earning $11 million in total compensation, many consider CEO pay to be “out of control.”
Why Is CEO Pay Rising? Maybe There Aren’t Enough Good CEOs
Rarely do people ask, “How many people can actually run a large, publicly traded company?” The answer to this question is critical in determining whether CEO pay is excessive, because an important part of the value equation for any CEO position is how many well-qualified executives make up the labor pool of viable candidates.s will drive pay higher, just as it does in other professions. To better understand the size and quality of the labor market for CEO talent, we surveyed 113 nonexecutive directors of Fortune 250 companies. We found overwhelming evidence that directors believe that the CEO job is very difficult and that only a handful of executives are qualified to run companies in their industry. This has important implications. First, the labor market for CEO talent might be inefficient; second, scarcity is driving CEO pay up; third, directors’ performance evaluations might not be objective; forth, succession-planning is critical; finally, grooming internal candidates to succeed is likely inefficient.