The average annual CEO compensation package of FTSE 100 companies in 2021 was approximately $5million according to research by PricewaterhouseCoopers (PWC). In 2020, CEOs were paid about 351 – 481 times more than the rest of the company’s worker who are in management and oversight roles of the day-to-day operations of companies.

While some shareholders, board members, politicians, and the public (as measured by opinion surveys) believe that CEOs are overpaid in salaries,stocks, and shares; other including the executives themselves disagree. What can however not be disputed is the fact that CEOs are generally paid very large amounts relative to the average employee and their immediate subordinates.

The reason CEOs are paid lavishly is not because their work is too hard or unenjoyable. It requires personal sacrifice, long hours, and the ability to deal with stress and adversity. The nature of the job behind the title and the responsibilities of the role are part of the major reasons why they make so much money. Though no single man or woman creates all the value in a company, the CEO uniquely bears responsibility for the success and failure of the entire company. The work of a CEO can be difficult.

CEOs are often held accountable for difficult situations which sometimes they have no control over. Being the face of the company also makes them subject to public scrutiny and greater liability, as in the case of the CEO of Citigroup in 2007 who was hugely criticized for the losses from mortgage-backed securities. He was held responsible and ultimately left the company though he alone did not cause the calamity. Cases of resignations following profit losses and bad press are less talked about, whilst more conversations about hefty salaries, bonuses, and golden parachute in the form of separation packages in the tune of $926 million in the case of Morderna CEO are often more more popular and discussed widely.

Most CEOs practically have the working knowledge of virtually every aspect of the company/business. This kind of knowledge is not gathered overnight. The CEO have dedicated time and effort in doing so over the years, and this makes CEOs very knowledgeable and skilled in a particular niche, or industry. They are expected to bring all their skills to bear for the good of the companies, with numerous personal sacrifices to achieve it.

The salary of CEOs may seem exorbitant because of the steep competitive talent market of executives. This economic rationale is hinged on the interplay of demand and supply for competitive talent of CEOs. Large corporations compete for highly experienced CEOs with a track record to run their companies well. They are willing to pay market rates (sometimes higher) to commensurate the level of skills, expertise, education, business and industry intelligence and foresight a dedicated CEO will bring. The possibility to lose market share and value due to having an incompetent CEO is at no benefit to any shareholder.

With constant demand, and short supply of qualified CEOs, many companies are willing to pay very high salaries to keep their top executives satisfied. In situations where a CEO gets an offer from competition with significant raise in salary and benefits to jump ship, the offer is often matched to keep the CEO on board. Consequently, this increase becomes the new salary for the CEO for his current role, with a likelihood of increase in compensation in his next role.

As CEO positions are the highest rank in any organization, there are limited mobility and few job openings, thus making their decision to maximize the zenith of their career and the financial package attached a prudent one. Many CEOs negotiate salaries that are measurable to the risks and responsibilities they know are associated with the ultimate office. They are equally keen to leave a legacy admirable for others to aspire to become CEO someday.

Although some corrupt CEOs have exploited the system for their personal gain, and created the perception of only wealth accumulation at that level, some others have earned a salary measurable to the risk and responsibilities associated with the ultimate office.

Finally, it is noteworthy that many CEOs negotiate salaries that are measurable to the risks and responsibilities they are aware is associated with the ultimate office. They are equally keen to leave a legacy admirable for others to aspire to become CEO someday.