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But the greater cost may be the risky behavior that very high pay encourages CEOs to engage in, especially when pay is tied to short-term corporate performance.CEO pay also plays a major role in the broader trend toward radical inequality—a trend that, evidence has shown, precipitates financial instability in turn.If we take the latter view, the challenge of CEO pay will become clearer and more manageable.* * *It’s strange to imagine, but the position of corporate CEO is a relatively new one in the history of American business, and CEO pay has been controversial for most of that time.According to Harwell Wells of Temple University’s law school, who has written one of the only historical accounts of the CEO-pay debate, before the “great merger movement” of the early 20th century, all but a few companies were small and were run by managers who owned a sizable portion of the business.Is the corporation’s only obligation to return short-term gains to shareholders?Or can we begin to think of the corporation in terms of the interests of all those who have a stake in its success—its customers, its community, and all of its employees?
In essence, they have access to information that the shareholders do not have and can exploit that information for their own benefit.
According to the Economic Policy Institute, from 1978 to 2013, CEO pay at American firms rose a stunning 937 percent, compared with a mere 10.2 percent growth in worker compensation over the same period, all adjusted for inflation. The problem isn’t that the political system doesn’t want to deal with excessive CEO pay.
There have been any number of formal efforts to rein in executive pay, involving a host of direct regulation and tax changes.
As one would expect, changes in CEO compensation varied greatly with the state of the stock market and the economy.
The components of compensation also changed during this period, with a huge increase in stock-based compensation.
Among scholars, there are three main opposing camps with regard to this issue: Documenting changes in CEO compensation in the United States between 19, my study shows, using two sets of data, that CEO pay rose during the bubble to peak in nominal terms in 2000, after which it fell until 2004 and then began to increase again.