The amount of money the CEO of a company makes is the source of much controversy. Especially when those numbers are accompanied with headlines of multi-million dollar bonuses and mass layoffs.
While frustration is understandable, the reasons why these CEOs are paid so much is complicated. This article dives into how a CEO’s pay is structured and the potential solutions that could create a fairer system.
Why CEOs Earn More
Understanding how a CEO’s salary is calculated starts with looking at the basics.
The base salary is the fixed annual cash a CEO receives. It reflects the CEO’s experience, as well as the size of the company. Depending on these factors, base salaries can range from $500,000 to over $1 million.
Performance bonuses are incentives tied to company goals, such as hitting revenue targets or stock price milestones. For example, a CEO might receive a 20% bonus of net income if the stock rises 10% year over year.
Stock options give a CEO the right to buy shares at a fixed price within a set timeframe. If the company performs well, the CEO can exercise options at the lower price and sell at the market price. For instance, Tim Cook was awarded stock options in 2023 with a potential value of $91 million on top of his base salary and bonus.
All this money is meant to align a CEO’s interests with the company’s success. Critics argue stock options encourage decisions that boost stock prices in the short-term, but could hurt the company in the future.
To address this, some companies are tying stock incentives to broader performance metrics, like employee satisfaction or innovation.
The Layoff Conundrum
A lot of the controversy comes in when companies announce layoffs after reporting record profits or getting large bonuses. These decisions feel cruel and unfair. Yet layoffs aren’t an easy decision to make.
Economic downturns or a drop in demand can make it unsustainable to keep all employees on payroll. Cutting staff actually protect jobs in the long term.
Sometimes, companies restructure to invest in future growth. Automating tasks, entering new markets, or merging with another company can lead to reductions in the workforce. Yes it’s painful, but these moves can strengthen the company over time.
Hiring employees for important projects is usually followed by layoffs once the project is complete. While not ideal, contractors or temporary staff aren’t always a practical alternative.
Good leadership is when you balance employee well-being with shareholder interests. Understanding the reasons why layoffs happen doesn’t make them less painful, but it helps explain why they occur.
Executive Pay Across the Board
Focusing only on how much CEOs make is ignoring the bigger picture. High compensation packages extend across the executive team, including CFOs and COOs.
CFOs are responsible for financial strategy, reporting, and risk management. They often receive a base salary, performance bonuses, with stock options. In 2023, Alphabet CFO Ruth Porat received over $39 million in total compensation, including a $6 million base salary and stock options worth over $23 million.
COOs oversee the daily operations of a company. They also receive substantial packages. Alphabet COO Philipp Schindler earned over $29 million in 2023, including a $4 million base salary with stock options worth $17 million.
While these executives earn less than CEOs, they still play important roles in a company’s success. Looking at how these people are compensated illustrates how being in a leadership role results in higher salaries.
Fairer Pay Structures
The CEO pay debate is complicated. High salaries reward leadership and attract talent, but extreme wealth raises ethical questions. Critics point to unfairness, while defenders argue that performance-based incentives drive results.
Alternatives do exist. Some companies have salary caps tied to the lowest-paid worker. Worker-owned cooperatives challenge traditional hierarchies.
Broadening performance metrics to include employee satisfaction and sustainability is another way to better business practices.
Understanding why CEOs have such high salaries forces us to ask some serious questions. Does high compensation reward good leadership? Is the CEO focused on sustainability? Does he/she reflect the image we want companies to project?
More importantly, what values should our companies reward?
📌 Changelog
- December 24, 2025: Changed the formatting and re-wrote some sections to improve the flow.
- April 3, 2024: Date article was originally published.
