Do Pay Caps for CEOs Make Sense?

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The question whether CEO pay is excessive or adequate often leads to heated discussions. In an election year in Germany, the Social Democratic Party of Germany has recently made this topic the subject of headlines with their plan to cap CEO salaries. The argument that is usually brought forward in favour of CEO pay caps is a push toward “social justice”. This poses four important, consecutive questions: First, how can it be determined how much pay a manager deserves for his work? Second, do CEOs currently earn more than they deserve? Third, if so, at the expense of whom does this rent extraction occur? And fourth, would a cap on CEO salaries resolve potential issues? Continue reading “Do Pay Caps for CEOs Make Sense?”

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