Ceo Compensation

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CEO Compensation As Murphy (1998) rightly points out, CEO compensation has become one of the most debated issues in the recent past. A lot of research in this field has been conducted to determine the relationship between CEO pay levels with the corporate performance, firm size, board vigilance, CEO’s human capital, tenure & age. But the results of these researches are not very hopeful and have yielded conflicting results. This review aims at understanding these relationships and also tries to provide an ethical perspective on CEO compensation.
CEO Pay Structure CEO compensation package comprises of four key components: base fixed salary, annual bonus, stock options & restricted stock grants, and long term incentive plan
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Buchholtz et al., (1998) found that compensation committee members with close relationships to CEOs made more favourable decisions about CEOs than those with more distant relationships.
CEO’s human capital, age & tenure Harris and Helfat (1997) classified the human capital at three levels a) generic skills which are transferable across industries, businesses or firms; b) industry specific skills which can be transferred only to the firms that operate in that industry; and c) firm specific skills which cannot be transferred outside of the firm. They investigated the relationship between the impact of these skills on CEO compensation for both internal and external successors and concluded that differential skill specificity is associated with pay premiums to external successors. CEO’s age & tenure may play an important role but the studies conducted were unable to test for this due to lack of relevant data (Tosi et al., 2000; Buchholtz et al., 1998).
CEO compensation: An ethical perspective According to Matsumura and Shin (2005) the ratio of executive to worker pay has climbed from 42:1 in 1982 to 301:1 in 2003. This has invited a lot of criticism from the shareholders, employees and has attracted the attention of restrictive regulators. Perel (2003) tried to assess the issue by examining both the claims that CEOs are overpaid for the value they add to an organization and that CEO pay is inherently
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