By Jon Griffin
For many years politicians have been complaining about the perceived over-paying of management in public companies. Everyone has heard about the huge golden handshakes given departing executives upon leaving companies they have destroyed. John McCain has stated “all aspects of a CEO’s pay, including any severance arrangements must be approved by shareholders” (Mason, 2008). An article in The Economist (2008) argues though that although managers pay has gone up faster than workers pay, managers pay is by and large based on financial returns.
The Economist article goes on to point out that workers pay is subject to the whims of the labor market, while stock options and other pay incentives encourage managers to create more wealth for shareholders. Prices in the labor market are being kept from increasing largely due to the increased competition in the global economy. Managers on the hand are harder to outsource and competitors, having similar skill sets, are also looking for higher pay. Another factor that The Economist (2008) points out is that as a company’s assets grow so do the salary expectations of management.
