Published in Harvard Business June 17, 2009 by John Mackey
Steve Kaplan misses an important point when he posits that only the “external equity” or the market should determine how much a CEO is paid. If companies don’t also focus on “internal equity”–how the highest paid executive’s pay compares with that of everyone else in the organization–they risk losing their own staff’s dedication and focus.
Indeed, a bias to focus only on the external market in recent years has helped push executive compensation way out of whack. Because of the yawning gap between the leaders and the led, employee morale is suffering, talented performers’ loyalty is evaporating, and strategy and execution is suffering at American companies.