CEO Pay and the Public Trust

By Marcus Zwaine

A CEO who runs a company at their own risk, with no government protection, no public subsidy, and no regulatory barriers of entry, should be free to pay themselves whatever the board approves. In a true free market, where competitors can rise or fall on merit, the price of leadership is between the company and its shareholders.

But when a company holds a monopoly or enjoys government-granted protection, such as a bank, a utility company, or a private entity with a public service contract, the rules should be different. These businesses are not competing on an open playing field. They are, in effect, partly public commodities. And when the public dollar is involved, CEO pay should not be unlimited.

Here’s the principle: CEO compensation in such companies should be tied to the ratio between the highest and the lowest paid, full-time worker. For example: if a CEO wants to make $1 million a year, then the lowest paid full-time employee should be earning at least $50,000 or $100,000. The math works. The company spends the same total amount on payroll; it just distributes it more fairly. Instead of piling all the meat onto one plate at the top, you spread some back into the whole pie.

Because right now, too many workers are being served only the crust and vegetables of the chicken pot pie, while the CEO eats most of the chicken.

We could absolutely attract top notch, experienced CEOs to run these companies for $500,000, $700,000, maybe $1 million. And in return, we’d have stronger, more secure middle income workers, which is good for the company, good for the economy, and good for society.

It’s time to re evaluate CEO pay when the public dollar underwrites the risk.