"In terms of CEO compensation based on realized stock options, CEOs of major U.S. companies earned 20 times more than a typical worker in 1965; this ratio grew to 30-to-1 in 1978 and 59-to-1 by 1989, and then it surged in the 1990s, hitting 376-to-1 by the end of the 1990s recovery, in 2000. The fall in the stock market after 2000 reduced CEO stock-related pay (e.g., realized stock options) and caused CEO compensation to tumble in 2002, to 192 times typical worker pay, before beginning to rise again in 2003. CEO compensation recovered to a level of 347 times worker pay by 2007, almost back to its 2000 level. The financial crisis of 2008 and accompanying stock market decline reduced CEO compensation between 2007 and 2009, as discussed above, and the CEO-to-worker compensation ratio fell in tandem. By 2014, the stock market had recouped all of the value it had lost following the financial crisis and the CEO-to-worker compensation ratio in 2014 had recovered to 299-to-1. The fall in CEO compensation since 2014 has caused the CEO-to-worker pay ratio to fall to 271-to-1 in 2016. Though the CEO-to-worker compensation ratio remains below the peak values achieved earlier in the 2000s, it is far higher than what prevailed through the 1960s, 1970s, 1980s, and 1990s."
I'd say it's regular employees that are getting fleeced the most. We are in the middle of perhaps the greatest economic boom the country has seen, and yet wages have been flat for decades.
They don't get the pay because they're better, they get the pay so everyone with a realistic shot at becoming CEO works really hard for the tournament prize.
Well, consider a company like Amazon, with a revenue like $232.9 billion. Say the best CEO, relative to the second best, can eek an extra 1/10 of 1% of that as profit. That's $232 million.
I mean, I don't think "deserve" has anything to do with it. The leverage of the decisions and the market do. A company won't leave profit on the table because of the notion that one guy doesn't "deserve" to get paid some percentage of the value generated by his decisions. They'll want the best CEO possible at "any price", and market dynamics and rational self-interest will drive compensation into the hundreds of millions, with no notion of not incidentally disproportionately awarding one random person on the planet.
Consider this has to not only compete with itself but other ways of generating profit. Narrow mindedly: what if you invested the same dollar amount in middle management instead? More broadly: how much does $232 million in R&D generate?
Once you consider other portions of the business are actually capable of generating revenue as well the original question of "how much value can the CEO actually generate" still stands.
Thats the point of it all though isn't it? The value of the CEO is in knowing where to prioritize reinvestment. The CEO is the one responsible for making the decisions you are suggesting be made.
The CEO job is hard. To get to the position they're in they need to be expert "fleecers." Not just anyone can convince shareholders that one person has the work output of 20 engineers and therefore deserves equivalent pay. You need to have skills that no one else has: the ability to manipulate.
While I kind of agree to a degree, work output =\= value. Great managers have less work output than a single engineer, but can easily provide far more value as a whole in terms of removing roadblocks, protecting time, keeping work focused on concrete goals, etc. The same can be true at the senior leadership level as well where setting the company on the right path, executing large deals, securing new markets, etc. can easily create more overall value for the company than any one or even ten engineers.
An engineer's pay is bounded by, but not determined by, the value of what they produce. That is why even when an engineer produces a million dollar breakthrough, they don't get a million dollar bonus.
Instead, their pay is determined based on their replacement value -- how much the company would have to pay to get another engineer of comparable skill, if the first one should leave. If it is hard to find a comparable replacement, then their pay is also determined by the absolute value increase they bring relative to a less-skilled replacement. This isn't strictly true at all times but it's the guiding principle.
A CEO can likewise make decisions with billion dollar impact. But their pay should not be determined by the value of their decision-making, but rather by the price at which others would step up to take on that role, and by how much more valuable the current CEO's decisions than those that a replacement would make.
I don't personally understand why there isn't a huge pool of skilled would-be CEOs willing to run companies for a fraction of the pay of current CEOs. Probably because CEO experience is so hard to come by. The rewards are so high though that you'd think there would be more CEO boot camps. But I guess the risk of a bad CEO (whose bad decisions could sink the whole company) are considered high enough that a real track record is considered nearly priceless, and it also has huge barriers to entry.
