Corporate Governance Law : The Executive Pay

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.

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.”

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.

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.

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

Excessive top executive pay is viewed by the public as a direct linkage to economic inequality or disparity. Many opinions state that over the top pay stemmed from compensation trends and indicates corporate Board of Directors as business people earning similar salaries as top executives. Pozen and Kothari (2017) reported “More than 95% of the time, shareholders overwhelmingly approve the pay recommendations.” (Decoding CEO pay, para 2). Excessive pay distorts the views of the public and injures the trust of American workers. According to Pozen and Kothari (2017), companies, legislation, compensation committees, and stakeholders need to clearly articulate the basis of their decisions for setting excessive compensation.

As previously discussed in this paper, it is unethical for CEOs to be paid so much when compared to other employees their respective organizations, outlearning their peers as of 2011 by a ratio of 201 to 1 since 1965 (Mishel, Bivens, Gould, and Shierholz, 2012). Appropriately,

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:

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 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

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.

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.