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How CEOs Work


CEO Salaries

We all know that our boss makes more money than we do -- but finding out just how much more can be shocking and often hard to swallow. Chief executive officers (CEOs) obviously get paid handsomely (for the most part). But how much is too much? CEO pay is always controversial -- especially when the CEOs are getting perks at a time when the company isn't doing well.

Looking at how much modern CEOs get paid, you may think that they get to decide their own salary. But this isn't allowed in public companies. Boards of directors have that responsibility, and this is a harder task than you might expect. Pay too much and the board risks not only marring the public image of the company, but also squandering corporate funds. Pay too little and the board won't be able to attract or retain talented executives who are sought after in a competitive market.

It's such a difficult decision that boards often designate a compensation committee made up typically of two to five board members to determine how much to pay a CEO. Regulations stipulate that the members of this committee can't be current employees of the company (inside directors), which would cause a conflict of interest. Although private companies aren't required to follow such regulations, many do anyway [source: Smith].

Compensation committees often consider the advice of internal executives, but they also recruit outside consultants to help them determine an appropriate salary for the company's CEO. The committees strive to design an appropriate philosophy for compensating the CEO in a way that motivates performance. After the committee makes its recommendations, the board can decide whether or not to approve them. In the United States, Securities and Exchange Commission (SEC) regulations require that committees explain the reasons for their decision to shareholders in a released statement [source: Smith].

There's at least one CEO who makes less than minimum wage -- kind of. Find out who on the next page.