Executive Pay History

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.

On October 3, 2008 President George W. Bush signed the Emergency Economic Stabilization Act of 2008, otherwise known as the “bailout.” The Purpose of this act was defined as to, “Provide authority for the Federal Government to purchase and insure certain types of trouble assets for the purpose of providing stability to and preventing disruption in the economy and financial system and protecting taxpayers, to amend the Internal Revenue Code of 1986 to provide incentives for energy production and conservation, to extend certain expiring provisions, to provide individual income tax relief, and for other purposes” (Emergency Economic Stabilization Act). In my paper I will explain and show the relationship between the Emergency Economic Stabilization Act of 2008 and subprime lending, the collapse of the housing market, bundled mortgage securities, liquidity, and the Government 's efforts to bailout the nation 's banks.

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.

Executive pay – excessive pay for top executives is one problem that will not go away. It is a response to public concern about pay rises that are unrelated to effort, plus a number of high-profile cases of failed executives getting pay-offs of up to US $100 million and others having stock options backdated to give them a share of earlier capital gains. This at least tells shareholders exactly what their top executives are earning.

Over the past twenty years, America has seen a substantial amount of change and development amongst many technological industries. Old ideas have been revolutionized. Technology has been continuously upgraded time and time again. Americans slowly have to do less and less because new inventions are constantly increasing their abilities to do more for us. Cars are getting faster, phones are getting smarter and before we know it, 2-dementional televisions will be a thing of the past. Despite everything that is growing around us there are still few things that have stayed the same; for example, the average American income for 99

In 2012, the Troubled Asset Relief Program (TARP) it was a $700 billion banking rescue package enacted in late 2008. TARP rescued the banking and auto industries, provided loan guarantees, and helped stave off mortgage foreclosures. The government $430 billion of the total $700 billion approved. After repayments and a $25 billion profit, “the TARP’s ultimate net cost to the taxpayers was just $32 billion,” according to March 2012 estimates by the Congressional Budget Office. The TARP program succeeded in helping the economy recover and stabilizing the banking sector. One 2011 study showed that without TARP and other crisis management policies, US GDP would have been 6% lower, the unemployment rate 3% higher and almost five million more people

When the economy came crashing to its knees, the United States government in an attempt to stabilize the economy unjustly started using tax payer’s money to provide financial assistance to the multimillion corporations that were failing. The first assistance package was approved by Congress in October 2008. The Emergency Economic Stabilization Act initially authorized the Treasury Department to spend $700 billion to fight the financial crisis. Later the sum was reduced to $475 billion and was distributed to different organizations through the Trouble Asset Relief Program (TARP). TARP was a government program that redistributed wealth because it simply made rich people richer while it neglected to help the poor and the middle class. Under

Americans are outraged. Billions of taxpayer dollars were committed last year to rescuing firms such as Citigroup and the American International Group (AIG). Earlier this year, several companies who received Troubled Asset Relief Program (TARP) assistance were awarding top executives with extravagant bonuses. According to the Wall Street Journal, the U.S. government lent $238 billion in TARP taxpayer funds to almost 700 banks; 44 of these banks have repaid a $71 billion (Johnston, para 6). There remains $167 billion invested in banks. Some critics argue that a “mere” $167 billion is not significant to warrant public indignation against bonuses. However, the issue is not about specific bonus amounts but the principle of

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

Given the effect a CEO can have on a company's success, we can understand why their compensation packages

Morse, A., V. Nanda, and A. Seru. 2011. Are incentive contracts rigged by powerful CEOs? Journal of Finance 66 (5):

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.

The other study of, Schmid and Walter (2009) also added that CEO’s with having the greater incentive alignment would be taken the higher risk compared to the weaker incentive alignment. During the crises, it has been evidenced that CEO’s had massive investments in their banks. The overall value of stock options in CEO’s portfolio was almost 8 times of the 2006 level. In order to achieve the strapping growth and stupendous returns in their investments , the major banks like RBS increased their debt / equity ratio to 86.20 % in 2008 against the level of 60.10% in 2005 ( RBS Annual Report , 2008). Similarly, HSBC has also swelled their debt/equity ratio to 10.6 times in 2007 -2008 from 7.5 times in 2005 (HSBC Annual Report, 2008). Thus, the implication was that substantial decline in the bank’s stock value has wiped out the whole compensation of the CEOs. On the

In summary, studies such as, Emre (2013) examined the effectives of executive pay and shareholders value. Findings reveals that, though seen as the solution to an agent-problem, pay-performance approach actually exasperates it. Main reason being , most CEOs who have been running the organisation long enough uses their power to make hostage the board to mastermind pay increase at the cost of an organisation. As pay negotiation occurs between CEOs and the board, the terms of agreements may not be submitted for shareholder endorsement. An opposing argument to this claim came from Gong (2011) who found a relationship between pay-performance in the long run. Nevertheless, Gong’s study bared testing limitations and accuracy of which further study is needed to gain a richer appreciation.

“The global financial crisis in late 2007 and in 2008 increased public disquiet about the high level of executive remuneration” Lipton & Herzberg p 316.