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What is the argument for high executive salaries with regard to risks taken by firms?

What is the argument for high executive salaries with regard to risks taken by firms?

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Answer #1

The firms usually give executives a buyin into the firm, i.e. they own stock in the company. So if the firm performs well, the CEO salary increases, but if it doesn't, his/ her salary plunges. Further, the board evaluates performance of a CEO at regular intervals of time. However, in such a scenario, a CEO may take very less risk, as her salary depends on the company's performance. Also, some CEOs may take more than necessary risk as a positive situation would increase rewards for them.

Nevertheless, the responsibility of the company's overall performance and risk exhibited is beared by the CEO, and because of this responsibility deserves a high salary.

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