CEOs make too much money, Paul Polman and Andrew Winston write in their book Net Positive. “CEO compensation rose more than 1,100 percent over forty years, while typical worker wages stagnated at 14 percent growth. Without some change, executive pay will remain a flash point for issues relating to inequality, mistrust of elites and business, and economic insecurity.”
The system is rigged, they write. “Stock options made companies even more short-term focused and prone to abusing the system. (…) The average duration of executive compensation plans globally is a shockingly low 1.7 years.”
The solution is simple, although many CEOs don’t find it easy: just don’t raise your own salary or don’t agree to raises as suggested by your board. Another approach might be to redesign executive pay into a more sustainable model; RewardValue is researching and promoting this approach, see https://www.rewardvalue.org/about/
Paul Polman held his own salary flat when he was the CEO of Unilever, against the board’s wishes. That requires courage. But not only that: “He moved senior executives to just salary – no cars, no pension, no options.” Executives were encouraged to put their money in Unilever shares; the company matched any bonus the executive chose to invest. As a result “executives in successful companies can still enjoy high wealth generation without making inequality worse”.
This is part of a series of blogs about “Net Positive”, an important book by Paul Polman and Andrew Winston. See the other blogs on this website.