CEO pay in the United States is a hard thing to wrap your head around. In theory, it's based on company performance -- in the case of publicly traded companies, it's measured in large part on stock prices. Stock goes up, shareholders make money, shareholders vote to pay the CEO more.
But there's a disconnect. Shareholders aren't voting on actual CEO performance, they're voting based on rises (or decreases) in stock price -- really, what affects their own income. And it doesn't consider the disparity between worker pay and CEO pay.
Enter the new proposed pay package for Apple's CEO Tim Cook -- a cool $99 million, according to AXIOS. Shareholders say they want to make sure Cook is happy, ensuring he'll stick around to boost business. He's been doing a fine job so far: The company's equity performance since Tim Cook took the top job has rendered a total return of 1,400%.
And yet, there's pushback. An advisory firm recommended shareholders vote against it -- in part because it widens the gap between what Apple employees make and what Cook makes.
For where I sit, that's the really the crux of it. Tim Cook is beholden to shareholders, yes, but the company's success is only possible when employees trust their own leadership and engage fully in the company mission. Widen the chasm of compensation and you start making employees uncomfortable -- disenchanted, disengaged.
To quote the Economic Policy Institute:
"Exorbitant CEO pay is a major contributor to rising inequality that we could safely do away with. CEOs are getting more because of their power to set pay and because so much of their pay (more than 80%) is stock-related, not because they are increasing their productivity or possess specific, high-demand skills."
I recently gave a nod to Apple for its shift in benefits and pay for part-time retail workers -- a step in the right direction, to be sure. But is it enough?
Here's my point, especially for those companies just getting off the ground: Hard-working entrepreneurs and CEOs deserve to be paid well, but should always keep in mind that "it takes a village." Creating pay disparity in the early days of business sows distrust and feeds turnover. More so, it can open the door to pay inequities in every corner of the business, cascading down to the lowest levels.
How do small business owners avoid it? Start with transparency. Tell your employees how your pay is determined. Explain how you calculate pay for everyone in the business and open the door to discussion if pay inequity is taking root. Also, provide avenues for voicing confidential questions and concerns about unfair compensation.
As punctuation, let me underscore that hard-working CEOs and entrepreneurs deserve to be paid well. They do. But I urge you to ask yourself this: Is your ultimate goal only to make more money, or is it also to create a business, a culture, and a legacy you're proud of while empowering others to realize their own potential? Both are possible, but render the formula lopsided -- in either direction -- and success becomes an uphill battle.