Executive Compensation

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

Compensation systems can take on many forms, all of which have positives and negatives related to it. However, certain components are noted to be determinants of solid compensation plans. One agreement of a solid compensation system is the use of incentives. “Clearly a successful companies set objectives that will provide incentives to increase profitability” (Needles & Powers, 2011). Incentive bonuses should be measures that the company finds important to long-term growth. According to Needles & Powers (2011) the most successful companies long term focused on profitability measures. For large for-profit firms, compensation programs should offer stock options. The interweaving between the market value of a company’s stock and company’s performance both motivate and increase compensation to employees As the market value of the stock goes up, the difference between the option price and the market price grows, which increases the amount of compensation” (Needles & Powers, 2011). Conclusively, a compensation plan should serve all stakeholders, be simple, group employees properly, reflect company culture and values, and be flexible (Davis & Hardy, 1999; The Basics of a Compensation Program).

7. Option compensation will continue to be a critical component of compensation for executives as it simplistically aligns the executives’ pay to shareholder value in its simplest sense. I don’t believe that options compensation is the primary driver of behavior when things shift from the legal to the illegal. As with most senior executives in industry, ego is a huge driver in individual behavior. Compensation is important, but the recognition of your performance is sometimes even more important. We have created a performance driven culture without the necessary control framework for people to operate within. One minute you are doing a great job, the next you have crossed an imaginary line. The frameworks don’t do enough to quantify behavior as legal and illegal leaving inconsistent rules for organizations to operate within. How does Enron compare to the subprime mortgage debacle, or to Steve Jobs backdating options. There remains too much room for interpretation.

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

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.”

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

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.

One reason I can agree with this reasoning which happens if you compare the work of someone beneath an executive their pay grade is going to be significantly lower. If you compare the pay rate of a school teacher who has a major impact on lives daily to an executive they are getting paid way below standard. The average pay for an executive is $100,000 as to a teacher’s salary of $50,000 now you do the math on that one. I can clearly say in this event, I do believe that executives remain paid too much in comparison to a

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 gave the right to the shareholders to be able to approve the executive compensation for a company, in this case the Kroger Corporation. However, this is only on an advisory basis which is nonbinding. Meaning, if Kroger so chooses, it may not follow the executive compensation decisions made by the shareholders. Ultimately, the power to set the executive compensation is given to the Compensation Committee. Kroger wishes to retain the best management possible, and it does so through competitive pay. Kroger believes that a significant amount of the pay should be based on performance and the proportion of responsibility held by the executive. They also believe compensation should

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

According to Dodd Frank Act, 2010, companies have to disclose this inequality and reasons of high compensation given to their executives. The board members continue to find avenues to continue this high compensation. However, being so concerned about the CEO compensation and not being concerned about their employees could cause employees to quit. The employees don’t look to be making what the CEOs make, but at some point they will feel they are being taken advantage of. This could cause the company to lose dedicated and reliable employees because of their selfish acts. Society will began to have a different out look on certain companies, it might come to a point where society might feel if they buy this they are continuing to make these CEOs salaries. This could result in market drops and lack of sales. Continuing this escalation in CEO compensation could result in a lot of consequences to satisfy these tremendous CEO

Many people argue that excessive executive compensation creates extreme unfairness between senior managers and employees. In other words, many executives are way over-paid than they should be. According to Wall Street Journal, the CEO of Apple Inc., Tim Cook’s 2015 total compensation was valued at $10.3 million (“Apple CEO Tim Cook 's 2015 Compensation: $10.3 Million”, 2016) – almost 200 times of an average salary-based worker’s compensation. The U.S. government has been making some effort facing this situation. In 1993, President Bill Clinton signed his first budget that was later enacted by Congress as section 163(m) of the Internal Revenue Code. Over 20 years has passed now, does this significant limitation in tax code actually worked?

1. Since 1980 to 2002, the competition and the growth in markets have become tougher and as a result there is a high responsibility. The executives are earning high amount just because they are running and managing companies which are growing very rapidly. Over the years the high increase inflation is generated were the ways in which payment was granted to the people, the change towards the shares from the stock options. T Those two things were happened at the same time. From 2002, the people reacted critically towards the the ways in which these executives were paid. The governance accusations of the shareholders pressurized that these executives are giving protection to themselves and are paid excessively high (Brick et al 2006). Now the executives can be eliminated in an easier way. Companies are paying them because these executives can be replaced very easily. Basically it is the title they paid on the basis of the risks they bear and outstanding performance for the coming year. On the other hand they are paid because stakeholders wanted them to be with the international market. If the companies have to give the response to a problem, there is a counter argument to sustain the option of

Executives and those responsible for misdeeds should have been subject to significant clawbacks of compensation. If the reason they misbehaved and took inappropriate risks was to raise compensation, losing that compensation would be an appropriate punishment.