Why CEO's make so much money. Part 2

In the previous post I tried to put in perspective the money that CEO's make. Considering the billions of dollars worth of decisions they make, $59 million is not a terrible amount. Furthermore people are confused and sadly mistaken when they believe a CEO is paid at the expense of the consumer. If that CEO can save the company $100 million then paying him $99 million is advantageous and saves the company, stockholders, and consumers money much less the $59 million they are paid on average.

Today lets address oppurtunity costs effect on CEO pay. Oppurtunity costs are those costs given up by someone in order to achieve something else. The oppurtunity costs of me going to college is not the $25,000 it cost to go that is direct costs, but the 4 or in my case 6 1/2 years of working I give up at another job and time that I give up in order to attend that college. If I decide the pay off will be greater in the future for going to college I will still attend. It usually is in America and that is why more people do go to college today then do not. When a person decides to become a CEO they give up other job oppurtunities. Most are very capable leaders and could go into many other fields. Most CEO's have the abilities that are of low supply and thus their pay must be higher.

They give up much of their time as well. Most CEO's will spend over 60 hours of work a week to achieve that CEO status. When they achieve that CEO status they work sometimes 70 hours a week. They give up family time if they have a family. They give up vacation time if they enjoy vacations because their demand in the office is so high. When they do decide to go on vacation they are on call 24 hours a day for major decisions or emergencies. Very few people are willing to give up these benefits.

Probably the largest oppurtunity cost is the cost of a short job career. Most CEO's are older when they achieve that status. Despite this they still have years of work ability left in them and want to work for many years to come. The problem is that they usually do not last long as the CEO. CEO's are fired yearly. Many only last a few years. If they lose their job they might be offered a lower paid job in the company but many are fired alltogather and their reputation might be too tarnished to get work elsewhere. Without the high amounts of pay that these men or women are offered they might decide the oppurtunity costs are too large to risk.


I will now have to have a part three due to the length of this post. Incentives is another reason to be paid high salaries. I will also discuss their high pay to leave a company in many cases.