Executive Compensation Essay

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.

1a. One potential goal of earnings management is income smoothing. Briefly discuss why income smoothing might be a goal of management, including a discussion of incentives to smooth income. What techniques might be used to accomplish income smoothing beyond the selection of depreciation and inventory costing alternatives?

The standard statements focus on accounting income for the entire corporation, not cash flows, and the two can be quite different during any given accounting period. However, for valuation purposes we need to discount cash flows, not accounting income. Moreover, since many firms have a number of separate divisions, and since division managers should be compensated on their divisions' performance, not that of the entire firm, information that focuses on the divisions is needed. These factors have led to the development of information that

There are a number of areas on the earnings statement that provide management with opportunities for influencing the outcome of reported earnings.

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.

In 1965, the average pay of a CEO in a company was about 20 times (20X) the pay of the average worker in the company. In 2012, the average CEO increased to about 379X the pay of the average worker. In 2012, Apple CEO Tim Cook earned 6258X the pay of the average worker at Apple in 2012

Income inequality remains a provocative buzzword in today’s business world. As I pondered and prepared for this week’s written assignment I was reminded of the Occupy Wall Street movement that occurred several years ago. That movement was concerned with economic inequality and wealth distribution within the United States, specifically between the wealthiest 1% of the population versus the other 99%. That wealthiest 1% of course includes many corporate CEOs. It is no secret that a corporation’s executive compensation has traditionally exceeded the compensation of the average worker. This generates questions about whether this difference is ethical and whether or not this is a valid reward distribution system. After my readings and research, I am in support of the current executive compensation model for being both ethical and acting as a valid reward distribution system.

This investigation studies both theoretical and empirical evidence on the trend of rapidly increasing executive compensation in America. Over the course of three decades, executive compensation for the top five highest paid managers of publicly-traded firms has increased so much that the parallel growth in the size of the standard American business, the parallel increase in complexity of the standard American business following the Age of Information or computing and its ensuing technologies and the globalization of the American economy, and the parallel heightened corporate governance of the standard

To effectively understand compensation packages, it is critical to understand agency theory. Agency theory represents the differences in goals between management (agent) and the firm’s shareholders (principal). According to Murphy (1998), compensation plans are a solution to the goal incongruence between management and its shareholders and will be explained later in this paper.

Does it matter what your competitors are doing? Step back and consider management’s incentives and choices. What is the motivation to manage earnings?

* Since management compensation is tied to firm performance, managers are incentivized to keep costs under control and maintain profitability. However, it is important to balance cost-controls with

One explanation of why firms might choose to put into practice conservative accounting practices lies in efficient contracting theory, for example, conservative accounting can be used as part of a firms strategy to ease the conflicts that arise among the many claimants of a firm’s net assets. This is because conservative accounting methods place restrictions on the distribution of those net assets thereby limiting the scope for self-serving opportunistic behavior. Conservative accounting can also help in bringing into line the interests of managers and shareholders through its impact on accounting earnings measures that are regularly used in management compensation contracts (Iyengar & Zampelli, 2010).

Before the promulgation of IAS 37, there was some misuse of provisions, such as income smoothing it is minimising volatility in earnings, and also ‘Big bath Accounting’. Obviously, these against to the principle of prudence then IAS 37 effectively banned these.

The concept of earnings management is not a new thing. Its practice is actually very common among most companies. Managing earnings is not all necessarily bad. However, there is a fine line that shouldn’t be crossed. Corporate managers are under extreme pressures when it comes to meeting forecasted results. There are various factors that contribute to these pressures: external, company culture, and personal. Corporate management may use various transactions to help “make the numbers”. But, it is when the line between practical methods

Nowadays, as our economy is facing possible everyday crises, managers undergo an increasing pressure in order to keep their company 's earnings stable. Shareholders and analysts expect companies to meet forecasted goals and not to deviate from these. Especially, reliable companies are to report positive results and shall not present any 'surprises '. Managers therefore often turn to their accounting departments for help, whose job it then is to improve the bottom line by changing the information shown in financial