Corporate Governance Law : The Executive Pay

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

Read the discussion case "Executive Compensation" on pages 190-192 then answer/discuss questions 1-7 that follow.

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

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

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.

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.

The practice over overpaying company CEOs in contrast to the general employee population is not considered a valid reward distribution system. As reported in the “The State of Working America”, the ratio between CEO salaries and average company wages was approximately 19.2 to 1 in 1965. In 2011, this ratio was nearly 220.2 to 1 (Mishel, Bivens, Gould, and Shierholz, 2012). Per Mishel, Bivens, Gould, and Shierholz (2012), this ratio has experienced a 177.15-point decrease from the year 2000, when the

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:

The question of whether CEOs earn their pay has been created widely sound debates and attracted comprehensive attention from investors, employment economists, financial economists, as well as unfavorably criticized by the public at large (Conyon, 2006; Larker and Tayan, 2011). The debates on executive compensation in general, and on Chief Executive Officers (CEOs) compensation in particular have been passed for years and agglomerated a multitudinous amount of studies (Devers et al., 2007). Criticisms from the public and heated debates from the academics began from the 1990s when executive compensation soared higher than company profitability (Bedchuzck and Fried, 2004). This led the popular press to claim that executive compensation was not correlated to firm performance (Tosi et al., 2000). As a result, one of the most impetuous questions posed out that whether executive pay had been associated authentically with firm performance or not while the empirical executive remuneration studies revealed that firm performance hardly ever exceeded 50 percent in determining top executive compensation, and pay-for-performance sensitivity was so weak (Grabke-Rundell and Gomez-Mejia, 2002).

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.

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.