13 June 2013

Does High CEO Pay Suggest That a Country is Falling Short of It's Potential?

The ratio of CEO pay to that of average worker is considerably higher than it is in Europe.  By various estimates, CEO pay in the US is between 231 to 380 times that of the average worker. You might wonder if this is because the US is ahead of Europe on the path towards future prosperity or on an odd detour.

The Economist just published a chart showing how the median pay of workers compared to that of CEOs in various countries. (Article and chart here.)

Now it could be that the US is far ahead of Europe in economic development but the countries that have the highest ratios in Europe tend to be those in the former Soviet Union and troubled economies like Italy and Spain. Really advanced countries with higher per capita GDP, countries like Norway, tend to have lower ratios of CEO to employee pay. (Norway's per capita income of roughly $60,000 is considerably higher than the US's per capita income of about $50,000 and nearly double Italy's $30-some thousand.)

It is certainly possible that paying CEOs so much helps our economy by attracting the best and brightest to a company's most important position. This data from Europe, though, suggests that it might instead be an indication that a community is less developed, in the same way that countries that pay their heads of state more than anyone else (think Mubarak or Hussein) are less developed. Or it could be that a country that three times elected Berlusconi to be Prime Minister knows more about leadership than those Scandinavians.

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