Why do CEOs earn so much?

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CEOs are paid much more than the average worker. In some cases today, they might earn up to 200 times more than the average employer. In light of such figures, there is widespread opinion that CEOs are grossly overpaid. But why do they earn so much anyway?

Being a CEO of a company is quite different than being a normal employee. The average worker earns for his ability to create or improve the commodity value for a company. His work is supposed to be profitable for the company, and his wage reflects the degree of the profit. Executives, on the other hand are to make decisions that would take the company forward. They are tasked with making good investments and to attract shareholders. While the average employee cares about the internal aspects of the company, the CEO has to worry about the external view.

The huge salary of a CEO is derived from having a stake in the company. They are substantial shareholders in the company and they earn a fraction of what profits the company makes. Hence, their earnings are directly linked with the well-being of the company. A prospering company would then lead to massive earnings for its CEO. Companies make profits in billions, and even a fraction of them would translate into a huge number! The sheer risk and decision making involved in the work of a CEO, tends to pay off dividends in monetary forms.

So while CEOs might be being overpaid, we now know how they are earning so much! They own stock in the company and get a fraction of the profits made. Risk has its advantages after all!

Author: aliakber

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