Executive Compensation and the Dramatic Increase in Corporate Accounting Scandals

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

CEO incentives make it so that it is their main job to help the stock price rise. By doing this, they increase the value of the company. When the value of the company increases, stocks go up, and wealthy people who own the stocks reap the benefits. Corporate leaders align their interests with the immediate interest of stockholders. This allows CEOs to cut wages as this betters the price and profit of stockholders. Financial strip-mining cut out millions of well-paid jobs and lowered the wages of average workers. Unregulated Wall Street has ruined the American economy for

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.

A CEO is responsible for making decisions that affect the wealth of a company, they may cut backs, they lay people off, etc. When the CEO saves the business money he himself is rewarded with a cut of the money saved just for making a few decisions and doing a little math. He (or she) makes more then anyone else in the company, for what making cost beneficial choices? While the workers

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

We believe giving executive compensation with the financial support bestowed from the government during the economic crisis is unethical as they are aimed to support the companies from facing bankruptcy or from financial struggles they are currently facing. The stakeholders involved in this financial crisis were the chief executive officers of the major banks, the investors who invested into the companies, those who bought CDOs and other “garbage”, and ultimately the taxpayers whose money were used to relieve the major banks from going into bankruptcy.

The company’s stakeholders include primary groups of customers, employees, shareholders, owners, suppliers, etc. and secondary groups of community. All stakeholders have their own self-interests. While employees want secure jobs with high earnings; customers want quality products with cheap prices, which may eventually result in the company and employees’ low income. Being said that, the corporation owes all stakeholders the obligations to meet their interests. That brings in the ethical issue of conflicts of interest, one of key problems at Enron. CFO Andrew Fastow created financial partnership to hide Enron debt, from which he allegedly collected $30 million in management fees. The action obviously made Enron financial data look good, but at the same time deceived the company’s investors about the real performance. Many investors may make their investing decisions based on those false data. And that’s when the collapse begins.

It was reasonable for a CEO’s compensation to increase as the company expanded and became a larger entity, and the newly-granted shares and increasing stock options further aligned the CEO’s personal interests with those of the company and shareholders. In this sense, the second compensation package was also well-structured and not excessive. Seeing Sunbeam’s revenue rising and stock price climbing steeply upwards, Sunbeam’s shareholders and directors were fully convinced by Dunlap’s leadership, so they might perceive the increase in compensation amount necessary to retain and better motivate Dunlap to enhance the company’s value. Nonetheless, they neglected the fact that the increased portion of the equity-based compensation also further motivated the CEO’s dangerous behaviors pertaining to improper earnings management.

Some support I can use to back my claim is the difference of pay increase over time between CEO and average employees from 1980 to the present. Back in 1980 CEO made about 44 times the amount of money that their average employee was making. Furthermore, now in 2016 CEO raises are going up while employees have shown no increase in salary compared to CEO’s. I also can bring in real life examples

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

In 2003 the average pay for CEOs at 200 of the largest U.S. companies was $11.3 million--but there are a good number whose compensation packages approach the $100 million mark. Faced with these figures, Americans from all walks of life--who revile CEOs as greedy fat cats--are overcome with bewilderment and indignation. Astonished to learn that what an average worker earns in a year, some CEOs earn in less than a week--people ask themselves: "How can the work of a

Compensation for the 25 CEOs with pay surpassing corporate taxes averaged $16.7 million, according to the study, compared to a $10.8 million average for S&P 500 [.SPX 1204.09 -11.92 (-0.98%) ] CEOs. Among the companies topping the IPS list: eBay [EBAY 33.10 -0.59 (-1.75%) ] whose CEO John Donahoe made

In 1993, Michael D. Eisner of Walt Disney fame received $203 million as executive compensation. Although this award was inflated by Eisner 's exercise of stock options, many examples of compensation in millions and tens of millions raise questions on how CEOs should be paid. Critics dispute that CEOs are deserving of their pay. CEOs downsize companies or perform badly, yet continue to draw a substantial salary. Unlike low level managers, it seems there is no formula for executive compensation. The disparity between the executive pay in US and that of in other industrialized nations is great, furthering the belief that there is no rational (?) basis for compensation. Among sports and entertainment figures, there exists a

Those same 25 executives announcing the layoffs had just one week earlier paid themselves "retention bonuses" of $55 million" (Diekmann, 2005). These employees did not show or use ethical business conduct by making sure they themselves received pay; they are just as guilty as the top executives involved with the accounting scandals.