When Jeff Immelt was fired as CEO of General Electric in 2017, he did not leave empty-handed.
If it actually served, he did over $ 200 million in pension on top of 35 years of large salaries plus bonuses, which amounted to $ 33 million 2015 and $ 21.3 for example 2016. (Immelt reportedly also used two corporate aircraft when traveling, according to a Wall Street Journal Report.)
CNBC Make It asked Immelt, whose new book “Hot Seat: What I learned to run a large American company“describes his time as CEO at GE, about his salary these days and whether he thinks executives get paid too much today. It’s an ‘endless debate,'” he said.
The “good [executives] is probably worth more, others are probably worth less, says Immelt, even though he did not name names.
Immelt says that as CEO he worked 24 hours a day, seven days a week.
“I was going to do it whether you paid $ 5 million or $ 10 million,” Immelt said The New York Times. “But I think there’s a misdirection. I think that’s one of the reasons why businesses are not as trusted as they should be.”
Immelt himself admits that he is a bit of a “bad messenger” when it comes to the subject of compensation for the CEO, he told the Times. Many investors and analysts mistake Immelt for leaving one floor GE indebted and with its stock value torn when he left 2017. (For his part, Immelt says that his book provides context to his time, because the story has been unfair and incomplete, he says.)
So why does the CEO make so much money?
The average CEO of a large public company earns about 320 times as much as a typical worker, according to one Report released in 2020 by the Economic Policy Institute (EPI). The CEO’s remuneration has continued surge and could rise again despite the pandemic, according to Report. CEO pay for the top 350 companies in the US increased by 14% in 2019 to $ 21.3 million. From 1978 to 2019, the CEO’s salary increased by 1167%.
Although most Americans believe the CEO is overpaid (about 74%, according to a 2016 Stanford study), CEO salaries are usually linked to a company equity-related and financial results. Usually, the CEO receives a base salary, but most of their remuneration comes from performance-related bonuses and stock options that allow executives to buy corporate shares at a fixed price.
And the CEO’s successful results make their business more valuable at the end of the day, according to some experts.
That’s also the explanation from Fortune 500 companies, that’s their “mantra”, says Sandy Pepper expert on executive salaries at the London School of Economics and Professor of Management Practice. However, there is a lot of evidence that the strongest connection is between the CEO’s salary and the company’s size, according to Pepper.
“So when companies get bigger, the CEO gets paid more,” he says.
Pepper also says that many Fortune 500 companies face a “prisoner dilemma” when it comes to CEO compensation. A the prisoner’s dilemma is a game theory in the social sciences that is sometimes applied to the business world when fierce competition between companies can stop harming these companies in the long run.
In this case, it is the case that the big companies “would like to pay more modestly if everyone else did too. But they reason that if they pay above the odds, they can get a top return,” says Pepper. “On the other hand, if they pay modestly and everyone else pays above the odds, they could get an underperforming CEO.
“So everyone stops paying over the odds,” he says.
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