Does high executive pay deliver performance?

In 1982 management scientist Peter Drucker said no executive should make more than 20 times the pay of a company’s workers. He was spot on then and his point stands today. However, I’d phrase things slightly differently:

No executive is worth 20 times the pay of an ordinary worker.

So why are companies willing to pay some executives many hundreds times the pay of ordinary workers?

It;s not because they deliver ’shareholder value’ because its been shown repeatedly there’s almost no correlation between company performance and executive pay.

John Mackey at the Harvard Business Review blog has an interesting perspective on this issue:

If CEO compensation is primarily driven by competitive markets, then how come the ratio was only 24 to 1 back in 1965 and is about 300 to 1 today? Surely the market demand for good CEOs is no greater today than it was 45 years ago or 25 years ago. Are CEOs today really worth that much more than their comparable peers were worth just a few decades ago?

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• Why Sky-High CEO Pay Is Bad Business (blogs.harvardbusiness.org)
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