CEO Salaries, Leadership Quality, and Employee Motivation

Introduction: The Case Against Inflated CEO Pay

Leaders are important in organizations, but seldom is leadership just one person. The central argument here is that CEO salaries are overblown, and that most CEOs are not worth what they are paid. A truly exceptional CEO can warrant truly exceptional pay, because such individuals make contributions to the organization that are reflected in the share price. But most CEOs do not do this. They are too out of touch to lead effectively, and the rest of the leadership team can handle the day-to-day management of most companies with any halfway competent chief executive.

Most C-suite executives are capable enough to take on the CEO's job — at least the leadership portion of it, if not the political dimensions. There is a significant difference between great leaders who are visionary and can generate buy-in from people who have never even met them, and the majority of leaders, whose contribution is overstated. Too many people conflate great leaders with average ones and assume that a similar pay scale should apply. Compounding this problem, boards that approve CEO compensation are largely composed of other CEOs, so there is little more than a thin veneer of genuine accountability.

Leadership and Motivation Theory

When it comes to employee motivation, leadership does not even feature prominently in most motivation theories. From Herzberg's two-factor theory to Maslow's hierarchy of needs, motivation theories tend to be fundamentally inward-looking. They take as their base assumption that the employee is self-interested first and foremost, motivated by personal wants and needs. The desire to please a leader is not a standard element of motivation theory.

Employee buy-in to a corporate vision matters, but most companies do not offer anything compelling to buy into. Does anyone genuinely have a passion for serving coffee, selling cars, or working in retail clothing? If they do, it is because something about that particular job fulfills their own personal needs — not because they work for a visionary company that is going to change the world one transaction at a time. Most companies are simply not that visionary. Yet there remains a disproportionate amount of attention paid to superstar companies and their celebrated leaders. Most leaders, like most companies, are transactional and managerial in nature rather than inspirational.