Introduction In the present days, corporate governance law is ultimately important and is influential. Particularly, the executive pay has long been a topic of interest among the legal profession for many years. As the companies need to attract the director who has skills and experience to manage the company’s resource and make profit for the company, offering high remuneration to the director could incentivize them to use maximize proficiency and experience to control the company and not to use the company’s resources to benefit themselves. Therefore, it can be argued that the remuneration for executive directors is an important factor to attract the person with the right skills to control the company. However, the executive …show more content…
This essay will critically appraise the issue of unsuitable executive pay by determining the relevant principles and factors related to the executive remuneration and analyze the most plausible solutions to the problems. Remuneration committees The remuneration committee is one of the legal strategies which the company applied to ensure that the remuneration paid to the executive director is not managerial agency cost. The UK Corporate Governance Code (2010) recommends that the company should set up a remuneration committee with three independent non-executive directors in order to take charge of pay arrangements. The code sets out the basic role and composition of the remuneration committees; best practice on membership and way the committee working. Although, there is no statutory require companies to set up a remuneration committee, most of the big companies in UK apply this recommendation. Furthermore, this code provides the option that the chairman of the board can be a member of this committee. However, although the code’s recommendation tries to build a process which uninfluenced by the director, some commentators argue that director will still have influence over the committee and procedures to determine the pay which resulting in biased decision on higher executive pay. Moreover, most of the non-executive directors of
However, there have been many cases where the CEO and executive officers receive outrageous compensation even when the companies suffer. Overall, there is a wide disconnect between the incentive of the executives and the financial performance of their company, which needs to be fixed. By passing regulations and rules such as the Dodd-Frank Act, there is hope of shedding light on the connection between the company’s performance and the executives pay. Although it will provide a clear insight, it will not be able to set a strict regulated compensation or define what an executive should earn. Instead regulations will allow for more transparency for the shareholders regarding corporate governance issues such as executive pay. Along with that, it will force companies to take accountability for their actions. If they do poorly, then the executives should be paid less, and vice versa. Overall, there should be a direct alignment between executive pay and the company’s
The term 'executive pay' has acquired bad connotations over the past decade or so and the recent Occupy Wall Street movement brought this issue back into public consciousness on a worldwide scale (Minder, 2013). In Switzerland, the parliament recently passed legislation that would limit executive compensation excesses under threat of fines and imprisonment and the European Parliament agreed to limit banker bonuses to twice their base salaries. Adding fuel to this fire was last month's announcement that the golden parachute for departing Novartis Chairman Daniel Vasella would include a $78 million dollar severance payment.
Federal governance in executive pay is essential to a stable and healthy economy. I offer that the issue of Federal governance in executive pay is bigger than equity in compensation. “Taxpayers and politicians and others disapprove of these levels of compensation precisely because the leaders of these firms, in the words of Treasury Department officials, nearly caused the financial system worldwide to collapse.”
Directors have awarded compensation packages that go well beyond what is required to attract and hold on to executives and have rewarded even poorly performing executives. These executive pay excesses come at the expense of shareholders as well as the company and its employees. Furthermore, a poorly designed executive compensation package can reward decisions that are not in the long-term interests of a company. Excessive CEO pay is essentially a corporate governance problem. When CEOs have too much power in the boardroom, they are able to extract what economists' call "economic rents" from shareholders (Economic rent is distinct from economic profit, which is the difference between a firm's revenues and the opportunity cost of its inputs). The board of directors is supposed to protect shareholder interests and minimize these costs. At approximately two-thirds of US companies, the CEO sits as the board's chair. When one single person serves as both chair and CEO, it is impossible to objectively monitor and evaluate his or her own performance.
This report explores the issue of the pay that top executives make, and the reasons why they do. It also suggests improvements that can be made to make the system better. High Pay Seems Small When Compared To Company Profits Many companies pull in profits that are extremely high. When an employee of such a companies salary is compared to the amount of profit that the company earns, it starts to seem reasonable. It only makes sense that if the employee is directly responsible for the success of their company, then they deserve to get their payback. It seems ironic, but many salaries even look small once compared with a companies profits. Top Executives Are Under A Lot Of Pressure Being the CEO of a
Given the effect a CEO can have on a company's success, we can understand why their compensation packages
More considerations for your compensation committee: How’s your does your organization monitor handling social, environmental, and government policy issues? How does that translate or not translate into executive compensation? How is your organization handling performance management, succession planning, and other executive growth strategies? How does talent management translate into your corporate culture and employee engagement? How do you identify, attract, and support potential key executive candidates? How can you retain top
When approving compensation for directors, officers and employees, contractors, and any other compensation contract or arrangement, in addition to complying with the conflict of interest requirements and policies contained in the preceding and following sections of this article as well as the preceding paragraphs of this section of this article, the board or a duly constituted compensation committee of the board shall also comply with the following additional requirements and procedures:
This paper will discuss the reasons why CEOs are not being overpaid. It will apply the utilitarian ethical principle to many a few aspects to CEO compensation and whether or not it is justifiable for such pay. The paper will look at whether or not their performance is justifiable for the pay because they play such a big role in the livelihood of the company along with the principle agency theory and how it is being addressed for the benefit of the shareholders and others involved with the company, the supply and demand of the CEOs, and the paper will describe the comparison of other professions to help link the idea of CEOs being fairly compensated.
A public business corporation establishes a compensation committee consisting of outside directors that sets the salaries, incentive bonuses, and other forms of compensation of the top-level executives of the organization. An outside director is one who has no management position in the business and who, therefore, should be more objective and should not be beholden to the chief executive of the business.
Subramaniam, 2001), what, exactly, is the problem with executive pay? Are CEO pay packages simply too grossly large on some absolute scale, driven by unfettered greed beyond the bounds of what is ethically reasonable? Or is the real problem the growing disparity between executive pay and the wages of entry-level workers? Alternatively, is there a problem with CEO pay from the standpoint of distributive justice, or fairness? Or is the problem simply that executive compensation does not work properly – that it does not provide the proper incentive alignment suggested by the underlying theory? I broadly explore these questions by examining
This paper looks at the opinions and issues involved within executive compensation. This is important because executive compensation is such an integral part of a company or organization’s functions. Executives are the ones tasked with making the decisions within an organization, and their pay can sometimes be linked to how well or how not well their decisions pan out. To look at these opinions, research and high quality analyses from various data sources were used. Some of these sources included the in-class textbook, “Compensation” by George Milkovich, Jerry Newman, and Barry Gerhart. While other sources used, included peer reviewed journals as preferred by the professor. All of these sources were used to show the relevance between executive compensation and compensation management as an entirety. The results are across the board; there are issues and opinions that clearly contradict each other and individuals take many different stances on the topic of executive compensation. The conclusion is that this will continue to be an ongoing and sensitive topic to discuss within organization structures and plenty more research and data will arise for individuals to gain further and deeper understanding of the complex nature of executive compensation.
Individual Assignment 2:Report on the Composition and Operation of the Remuneration Committee and its Effects on Executive Remuneration
Organizations spend a great deal of time and resources in developing an effective compensation structure-one that is lawful, aligns with the strategy and objectives of the business itself, is externally competitive and can recruit and retain talented employees. However, not all positions will fall into this meticulously composed pay structure. There are groups of employees who will fall outside of the scale used for everyone else, with compensation packages seemingly at odds with what everyone else receives (Milkovich, Newman, & Gerhart, 2016, p. 502). Executives are one such group of employees-specifically senior-level executives, or CEOs. The computation of compensation CEOs receive does not follow the same process as that of other positions. As such, the compensation practices for senior-level executives have come under fire (Milkovich, et al., p. 504). There are many opponents to current executive compensation levels in our economy, many of whom cite the multimillion dollar total compensation received by some Fortune 500 executives compared to average worker pay levels (AFL-CIO, 2014). However, there are also proponents of executive compensation who believe that the inherent risk involved in these positions, in addition to market variables and job duties and responsibilities warrant the, sometimes confounding, compensation figures (Kaplan, 2008). This paper sets out to examine these arguments to determine if CEOs are over compensated in our economy.
The topic of compensation equity is very popular right now. Concerns about gender pay gap, CEO pay ratio, and pay satisfaction as it relates to employee performance are especially prevalent. For this discussion we will focus on the ethical implications of CEO pay ratio but in order to do this we must first define compensation.