13 Apr 2017 16:17 IST

Stop this jealous rant over CEO pay!

The CEO’s job is the riskiest role in terms of liabilities taken statutorily and legally

During my callow youth, every morning as I got off my bike at work, I would see the notice, ‘Parking reserved for CEO’ . A beauty of a car stood there, accompanied by a driver. I remember thinking that as a driver dropped the CEO, why was not that precious space left for lesser mortals like us. The CEO also occupied a spacious room which I reckoned was bigger than my house, not to forget a stylishly dressed secretary who seemed to do most of her work. Seemed like the CEO usually came before us and was the first to leave office.

All this didn’t bother me much till I discovered what her salary was from a newspaper report! I thought ‘My Lord, at the salary she is paid, we could employ 100 people like me.’

This is how I thought for much of my life. To say that CEOs are overpaid, I think, is nothing but pure jealousy. Some have even come up with formulas as to how the salaries should be in a certain median compared to the rest of the staff in the organisation.

Oh come on! Do you really know what it takes to become a CEO in the first place and then to survive? Despite all the distractions the board, employees, customers, media, regulations and family throw at them, some CEOs excel at their jobs. Why on earth, then, wouldn’t you pay them well?

Now, can we examine how a CEO’s salary reaches envious levels? Let’s say he starts with Company X, works there for few years, and hops on to a larger role at a competitor. This loop gets repeated and then he reaches a leadership role with his nth employer. It’s quite natural that his salary would be at a certain level after a couple of decades. When you want to attract a guy like that you also need to pay him more than his current salary. If you are desperate then you must stretch a little beyond to get the talent. Everyone who wants to hire a CEO knows the risk, hence pays higher. Leaders who want to be CEOs equally measure the risk and quote higher pay packets and get them. It’s a simple demand and supply equation.

Once you have hired a CEO, you can’t complain about his salary unless he is under-performing. We all know under-performance only has one result – exit. Any official discussion/comments by the board or colleagues after hiring a CEO at a certain salary is not only unprofessional but also hurts the company faster. To reach a CEO’s position one almost spends two decades, so it’s an organic, incremental financial journey; a high-pressure job which has detrimental consequences for the CEO’s personal life and health, an impact which goes unmeasured. It’s also the riskiest role in terms of legal and statutory liabilities, not to forget the personal financial risk if they get fired. On an average it takes over a year to find an equivalent job if they are lucky. Not sure if it’s easy to find one if the next employer is aware of the termination.

Think of a CEO’s job, where a million people are watching. The CEO must be seen everywhere, dress well, smile, have energy all the time, be punctual, say the right things, not cause a PR problem, be most eloquent whether with colleagues, customers or on stage with celebrities and competitors, and not to forget, be humble at the same time. With all this perfection in sync with the organisational values they also need to deliver quarter on quarter results! How on earth is this possible? First, we need to ask our scientists to write algorithms with all these impeccable traits and clone them for CEOs to be produced in great numbers. Only then we can generate the best CEOs in huge volumes which can whittle the salaries for the next generation.

If human beings need to live up to the expectations of the stock market, board, employees and customers in a volatile, uncertain, complex and ambiguous world CEOs need to be paid exceptional salaries, even if it is unpalatable to some of us. I don’t want to repeat that aphorism about what you get when you pay peanuts!

(The author is a prolific commentator on workplace dynamics. He was till recently the Managing Director of Kelly Services & Kelly OCG India and is now pursuing his entrepreneurial dreams. The article first appeared in The Hindu BusinessLine.)