Whenever news of a corporate meltdown or scandal breaks, many people are astonished to learn exactly how much the chief executive officer or CEO of that company actually earns. While the company itself may be in serious financial straits with its employees and/or investors, the CEO often escapes with a healthy severance package, known as a golden parachute, and begins work with another company within months. Many people wonder why CEOs make so much money, and the answer is not always clear.
One reason CEOs make so much money is the nature of the job behind the title. While most employees and supervisors understand their particular responsibilities for the company, a CEO needs to have a working knowledge of virtually every aspect of the company. This kind of knowledge is not gathered overnight, so an ideal CEO is someone who has extensively studied the industry as a whole and the inner workings of a specific company. A salary commensurate with this amount of expertise, education and vision may seem high to outsiders, but without a dedicated CEO at the top, the company could easily lose its focus.
Another reason CEOs make so much money is the business concept of paying for performance. Stockholders and other investors want to see their company remain profitable year after year, even when outside economic forces make it extremely difficult. CEOs who can successfully steer their companies through rough economic seas and still come out in the black are often rewarded with substantial performance bonuses and other financial incentives to ensure their continued leadership and company loyalty.
There are some CEOs who technically earn little to no money in actual salaries. Because they already have considerable personal wealth, some CEOs ask only for a nominal annual salary for tax purposes. This rejection of a standard salary does not mean the CEO of a successful company such as Apple Computers or IBM will go penniless, however. CEOs often earn more money through profit-sharing plans, performance bonuses and patent or licensing royalties. By not accepting an actual yearly salary from the company, a CEO can appear to be motivated by other reasons beside personal gain.
While many CEOs do make so much money from their company's performance, they also understand their skills and business acumen are in large demand in the marketplace. Struggling companies routinely seek out talented CEOs with proven track records to help them avoid financial collapse. Because of this constant demand and short supply of qualified CEOs, many companies pay incredibly high salaries in order to keep their top executives satisfied. If a rival offers a company's CEO a significant raise in salary and benefits to jump ship, this offer may have to be matched or bettered in order to keep the CEO on board.
Overall, most CEOs make so much money because they have made numerous personal sacrifices over the years for the good of their companies and have earned the right to share in the profits. Some unscrupulous CEOs have no doubt exploited the system for personal gain, but for others the salaries they earn are commensurate with the responsibilities and risks associated with the ultimate corner office.
