Why CEO salaries are so high? Is it justify from a stockholder point?

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Danone will suppress 2000 jobs (https://www.just-food.com/news/danone-to-axe-jobs-in-post-covid-shake-up_id144778.aspx), but its CEO has a compensation of 2’800’000 euros (which is quite low compared to other traded companies).

I have always wonder if these CEO salaries are justified from a stockholder point. In most shareholder meeting, asset managers accept these salaries to be increased. Obviously, part of the CEO salaries are linked to the stock price but does his work really bring such a high return to the stackholder?

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If you want good people, you have to pay good salaries. It’s just the job market.

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I’d say it differently: you want your CEO to be happy because (s)he has an ability to sabotage your business no other employee has… it doesn’t have to be active sabotage, it can simply be (s)he not giving their best because of job dissatisfaction.

The question is: can you find equal or better skills for a lower price? I’d tend to say that yes, you can. We have a very proactive young population yearning for disruptions. Few stockholders really hold the reigns of the decisions taken in GAs, so executive salaries are prone to some internally played game and not really open to a full competition.

Then again, shareholders need to exert their right to vote if they want their interests to be defended. When we consider buying shares in an ETF the same as buying them as individual shares, we focus only on the financial side of things and give no value to the voting shares part of it. It’d also be nice if pension funds contributors (i.e. you and I) had more of a say on how the fund votes in GAs though that’d be a different debate.

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Not talking about whether it is right, but I can think of three major factors causing these salaries:

  1. You want to incentivise the CEO to work in the best interest of your company/shareholders. (A similar effect exists, where the most corrupt countries pay their judges huge salaries to make them less susceptible to corruption.)
  2. Good CEOs have really specific skills, that are quite rare and not easy to train. So, you need to have very competitive salaries to attract those individuals.
  3. CEOs often have a large business network, which you’ll lose if the CEO doesn’t work for you anymore.

There are also theories that posit that CEOs tend to actually be underpaid (in an 101 economic sense):
Are top CEOs underpaid? - Marginal REVOLUTION