Excessive Executive Compensation Creates Extreme Unfairness Between Senior Managers And Employees

In “The Overpaid CEO” Susan Homberg and Mark Schmitt bring to attention how CEO pay in America is ridiculous in numbers as opposed to other parts of the world. Looking back, in the nineteen hundreds CEO pay was relativity average. As businesses and companies began to expand there was a demand for higher pay. Between 1978-2012 CEO pay increased by 875%! Many rules and regulations were put in to place to limit the pay of a CEO, such as the Securities Exchange Act that I will explain later on, regardless CEO pay kept getting higher and higher as many loopholes were found. Bonuses pay a large part in the salaries of CEOS’, as an effect CEOS’ tend to partake in risky behavior in order to score those big paychecks.

CEO compensation has been a heated debate for many years recently, and it can be argued

Executive Compensation. I’m in agreement with Thomas Piketty that the one cause of rising inequality in the United States “the rise of supersalaries” for top executives (Piketty & Goldhammer, 2014, p. 298). The average American estimates CEO to worker pay ratio at about 30-to-1, which is more than 4 times what they believe to be ideal. The career review site Glassdoor reported from 2014 data that the average pay ratio of CEO to median worker was 204-to-1 and that at the top of the list, four CEOs earn more than 1,000 times the salary of their median worker with the very top pay ratio of 1,951-to-1. In some cases a CEO makes in one-hour what it takes the average employee six-months to earn. In comparison, the Washington Post reported for the

The Institute for Policy Studies in Washington found that five elements in the tax code encourage overpaying executives, which can cost the American people up to $20 billion a year (Doc A). $20 billion is no small sum and could instead be used to increase the standard of living in America. With this extra taxpayer money, the US could provide healthcare to millions or slash infant mortality rates across the globe. Instead, it goes into another personal account in the Cayman’s. CEO

The closer you look into the world, the more secrets you will unlock. If you were to look closely in world history, you would see racism and inequality. If you look in art, you can see racism and inequality. Inequality has not been eradicated, there is still a heavy divide between races in our nation, the United States. As article one stated, 88 percent of blacks believe the nation still needs to make changes to benefit equality, but 43 percent do not believe these changes will occur. Different races have different views on the changes for equality. Article 1 states the 53 percent of whites believe the nation needs to change to aid the fight for equality. The other 47 percent believes that the country has changed enough to support equality.

See, Bob Reich isn't the just a single to notice disparity. Indeed, even most corporate chiefs are worried that soaring CEO compensations are askew with corporate benefit, and also normal worker wage. As working mom Nancy Rasmussen says, it just doesn't seem right. "I took a pay cut of $12 an hour. My benefits have gone down," Rasmussen says. Her voice cracking with emotion, she asks, "If you have millions of dollars, why do you need that little bit that I have?" We see it all around us: A CEO gets a huge bonus the same year he lays off hundreds of

According to Martocchio (2016), there are two groups of employees recognized by the Internal Revenue Service (IRS), namely, executive employees and non-executive employees. The unique element that distinguishes the executive compensation from non-executive packages is the emphasis on long-term rewards over short-term rewards. Although the Dodd-Frank Act focuses chiefly on overhauling the U.S. financial regulatory system, it contains several provisions that apply to setting executive compensation. The Say-On-Pay provision requires organizations to avail a resolution to shareholders that requires them to endorse, in a non-binding advisory vote, the remuneration of the entity’s named executive officers (Bainbridge, 2010). Then, to the extent that any “golden parachute”-related compensation is not approved as part of the Say-On-Pay vote, the Act

The final reason that the companies are over paying CEOs is that the nonprofit organizations are paying their CEOs very highly. According to Peter Frumkin in his article “Are nonprofit CEOs overpaid?” he writes about “264 big nonprofit CEOs earn a salary of $207,990… and a CEO of the Cystic Fibrosis Foundation earn 389,327” (83). These are a nonprofit companies yet they are paying there CEOs quite a bit of money that could be going toward the cause they are trying to raise for. The CEOs should not be earning that amount of money when it is being given to go towards the cause that they people are giving their money for. A CEO that is supposed to find money to help find a cure for cystic fibrosis is taking a good amount of the money home that

I made note of a ‘reasonable’ salary earlier in our meetings as well as in this memo. IRC Section 162(a)(1) permits a deduction for a “reasonable allowance for salaries or other compensation for personal services actually rendered.” Regulations further provide that “the test of deductibility in the case of compensation payments is whether they are reasonable and are in fact payments purely for services.” The regs continue, “An ostensible salary paid by a corporation may be a distribution of a dividend on stock. This is likely to occur in the case of a corporation having few shareholders, practically all of whom draw salaries. If in such a case the salaries are [more than] those ordinarily paid for similar services and the excessive payments correspond or bear a close relationship to the stockholdings of the officers or employees, it would seem likely that the salaries are not paid wholly for services rendered, but that the excessive payments are a distribution of earnings upon the

As it was put by Jim Lardner (2014) “One of the conspicuous drivers of inequality over the past three decades has been the spectacular income gains of the top 1 percent. Financial executives, traders, fund managers and others account for about one-fourth of those gains, and their paychecks, after taking a hit in the immediate wake of the crisis, are once again soaring to levels wildly disconnected from the state of the overall economy.” Reigning in these practices using policies like the Dodd Frank Act and the former Glass-Steagall act could help close the inequality gap by addressing misbehavior by the financial industry, such as pushing risky investments, which only serve the financial industry and hurt the people making these investments. Another bill called the Stop Subsidizing Multimillion Dollar Corporate Bonuses Act, would enhance a law already on the books that puts a cap on the tax deductibility of executive pay. The intention is to raise revenue

Take severance packages for example. When the average employee in no longer benefitting the company, chances are they will be let go. Besides a final paycheck for hours worked and the possibility of unemployment collection, they do not receive anything else from the company. When a CEO is no longer performing up to standards, they are forced to resign but walk away with much more than a final paycheck. Chuck Prince of Citigroup was shown the door after the company lost $64 billion in market value, yet he left with $68 million and a cash bonus of $12.5 million (Nickels, McHugh & McHugh, 2010). Not only are CEOs paid a substantial amount more for their work, they are paid a substantial amount more to leave the company all together. In 2009, President Obama and Congress put limits on executive compensation of firms receiving money under the federal government bailout programs. The payout to CEOs leaving their companies was limited to $500,000 but it wasn’t for all companies across the board. This new limit only applied to companies who had borrowed money from the government during periods of economic downfall and hadn’t yet paid it back. Despite the decrease in monetary payout, CEOs were still allowed a decent portion of restricted stock which amounted for a fairly large payout when the stock could be sold a few years down the line.

Stock options are another main concern and are based upon the performance of a company. A lot of companies are in a low return and low compensation which then caused bad business and it’s about 400 times that amount. I believe the government is trying to tighten down on excessive executive compensation with implementing salary caps. Executives are unrealistic with common life and way of living therefore; they do not take any consideration with the underdogs of the company or the world. The economy does have hope but it’s a long way from being stabilized once again.

While these citizen protests and legislative actions could be an overreaction to a few isolated cases of executive compensation excess, the data suggests otherwise. According to the AFL-CIO (2013), executive pay has increased dramatically over the past several decades compared to worker compensation. In 1982, the pay ratio between executives and workers was 42:1, but by 2012 it had increased to 354:1. This 8.4-fold differential in compensation suggests that the productivity of executives has also increased 8.4-fold relative to productivity of workers. If executive pay is positively correlated with a firm's bottom line, then higher pay should predict success. Unfortunately, researchers have found the opposite to be true.

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.

1. Sullivan & Cromwell associates are likely to find the pay structure fair. Likely comparisons would be with similar positions at other law firms at similar locations. Sullivan & Cromwell, for example, operates mainly in New York, which means salaries could most reasonably be compared with other law firms at this location. Furthermore, the company is very forthcoming with its pay structure, offering a complete and thorough display of its pay structure for different positions online (Glassdoor, 2012). Some salaries are offered per year, while others are offered on an hourly basis. A 6th-year attorney, for example, is paid on an annual basis, while a paralegal associate would be paid per hour. Salaries are also varied according to the complexity and seniority level of the position.