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CEOs in Fortune 500 companies raking in 129 times their 'ideal salaries' | CEOs in 35 of the top Fortune 500 companies were overpaid by about 129 times their 'ideal salaries' in 2008, according to a researcher at Purdue University. Venkat Venkatasubramanian, a professor of chemical engineering, wanted
to know if Chief executives in top-notch multinational companies are being fairly
paid or not. "One of the most pressing economic and corporate governance issues
of the day is how to determine fair pay packages for CEOs. The proposed theory
allows us to compute what the fair pay is for a CEO, including bonuses and stock
options, under ideal conditions," said Venkatasubramanian. The ratio of CEO pay
to the lowest employee salary has gone up from about 40-to-1 in the 1970s to as
high as 344-to-1 in recent years in the United States. But, the ratio has remained
around 20-to-1 in Europe and 11-to-1 in Japan, according to available data, he
said. Using the new analysis method, he estimated that the 2008 salaries of the
top 35 CEOs in the United States were about 129 times their ideal fair salaries.
CEOs in the Standard & Poor's 500 averaged about 50 times their fair pay, raising
questions about the efficiency of the free market to properly determine fair CEO
pay, he said. "You might ask why a chemical engineer is concerned with economics
and CEO salaries. Well, it turns out that the same concepts and mathematics used
to solve problems in statistical thermodynamics and information theory also can
be applied to economic issues, such as the determination of fair CEO salaries,"
said Venkatasubramanian. The findings of his study appeared in the online open-access
journal Entropy. |
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