Should Executive Pay Be Limited?

Should executive pay be limited?

The reasoning for this need of high compensation on an executive level,

is that successful or established companies need to offer their most skilled

and valuable employees a larger piece of the pie. In other words, a larger

piece of the company’s winnings in order to retain them, since they are the

ones with the most alternative options.

There only so many people who go around. There is a limited talent pool.

If salaries were capped, the most talented people would have less reason to

seek the position that make the best of their skills. If CEO pay were capped

and others not, the most talented potential managers would be more likely

to become lawyers or hedge fund operators. Generally, executives are
employed for their relevant experience and good performance in high-level roles,

not necessarily their industry-specific experience. The expectation of
executives is to bring copious amounts of experience and a working knowledge

of potential risks and opportunities that lie ahead for the company,
generated from proven experience running companies from similar sizes. To fulfil

these expectations it is expected in the majority of cases, that these skills

are transferable from industry to industry.

With this limited pool, industry hopping has become much more common, it

is believed that CEOs can transfer well. When companies take action to hire

a new executive, it gets a bundle of abilities and experience. Some general

management skills such as setting goals, organizing, motivating employees,

budgeting and monitoring performance have been shown to translate well

to new environments. It is almost inevitable for relationships to develop

between the executives and employees. While they might not seem harmful
at first, it can cause bias between decisions and performance reviews.

And more recently Angela Ahrendts has joined Apple in quest of creating

a global luxury brand. While she is foreign to tech, she certainly isn't to

design. This is one of many cases where people adapt their knowledge of

their old industry, in purpose of advancing another.

Companies have grown with the years and the salaries with it. Executive

salaries get affected much the same way that the free agency affected salaries

of athletes. In recent years, we have entered uncharted territory, regarding

compensation of professional athletes. Mayweather produced a record year

with earnings of $300 million, mainly caused by his record high earnings

from the fight against Pacquiao. In just the same way soccer is constantly

braking new transfer records. Christiano Ronaldo costing $80m in 2009 and

Gareth Bale costing a record high $100m in 2010.

Link between pay and performance is in the executive level strong. CEOs are

easily laid off when outperforming. The executive role has become increasingly
risky and complex, with almost 24/7 demands that are undesirable for