Individuals generally think performance should be essential or very important in deciding pay. What might be the positive motivational consequences for average employees if CEO pay is tied to performance?

How do compensation committees set executive compensation? In many cases, it comes down to equity theory and depends on the referent others to which the CEO is compared. Critics of high CEO pay want to change the perspective by comparing the CEO’s pay to the pay of the average employee. For example, Canada’s 100 highest paid CEOs are paid 171 times more than the average employee. From this perspective, CEO pay is grossly inequitable and thus “unfair.”