Overpaid CEOs Spells Mismanagement

A story in the Wis. State Journal on Aug. 28 entitled: “Hospital Leaders Pay Too High?” said: 1) the orthopedics chair at the UW Medical Foundation receives just over $1 million annually; 2) the CEO of the UW Medical Foundation is paid $708,963; 3) the UW Hospital CEO enjoys a salary of $689,585; and 4) the Dean of the UW Medical School earns $539,389. Eight others were listed who received similar compensation packages.

High paid positions generally mean there is something seriously wrong with management. With private corporations, it causes shareholders and/or consumers to unfairly subsidize the large pay. With government, taxpayers foot the bill.

Under normal economic conditions, wages are set in the market, in accordance with supply and demand curves. Wages go up where the demand for workers cannot be met by the existing supply. Wages remain flat, or go down, where the supply of available workers exceeds the demand.

Since the supply of available qualified candidates for most executive positions, like Chief Executive Officer (CEO), generally exceeds demand, there is usually no economic reason to pay such large salaries. The problem is Human Resources either sets the qualifications unnecessarily high, or they fail to seriously negotiate compensation. They are not trying to pay the least.

If Human Resources narrowed the field to five or so qualified candidates, and then confidentially asked each what salary they would be willing to accept, they could then start bidding down to find the market price. If someone wanted $500,000, but there was another equally qualified candidate willing to work for $400,000, and yet another willing to serve for $300,000, substantial sums could be saved by the shareholders and/or taxpayers.

It is hard to imagine a qualified person cannot be found at less than $1 million dollars, no matter what the job description. What high pay means is market forces are not being utilized, funds are being squandered, and ironically the organization in question needs a new Chief Executive Officer, because it is mismanaged.


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