Executive Pay Should Be Regulated to Prevent Executives Paying Themselves Too Much

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.

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.

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.

The problem is why do CEO gets paid 354 times greater than average employee salary of the company

If the current pay structure remains in place, it tends to demotivate workers, and production and its quality will be affected. The current policies must change. Corporations should begin to chart new plans to reduce the compensation gaps between their CEOs and the ordinary workers. The world is changing every day for the better. Wages of employees are lower than in 10 years ago (Mishel, L., Bivens, J., Gould, E., & Shiertholz, H.

The main foundation of executive compensation has not changed, it is designed to attract, inspire, motivate and in the end retain the superior talent in the management world. In 2008 a government fund TARP was “created to purchase troubled assets from financial institutions” (Bruvik & Whitney Gibson, 2011, p. 79). TARP funds put restrictions on executive compensation by; restricting paying out bonuses, limiting the “Golden Parachutes”, denial of benefits and used clawbacks if executive compensation was based on misleading statements (Bruvik & Whitney Gibson, 2011). In order to receive TARP funding, firms have to practice the US mandatory “Say on Pay” which was implemented in January 2011. The United Kingdom has also implemented the “Say on Pay” concept. The “Say on Pay” is a concept that “shareholders should be given a nonbinding vote on board of director’s

Because of their compensation sets the pattern the criticism particularly focus on the CEO’s high pay as well. Just like the previous criticism, there are current complaints which focused on at least two issues: Executives are paid too much and because the connection between executives current incentive-pay schemes are flawed. Because of these issues the company performance at best is mixed and at worst has led to a series of dysfunctional behaviors (Lorsch & Khurana, 2010). As the pay gap between chief executive officers and American workers of public companies grow; the question has aroused as to what drives the pay of the CEO’s and what’s behind the disparity. It is a known fact that it is a big disparity between the pay of other worker and the CEO pay in corporate America but what is the reason this disparity exists? The first major justification is an incentive for performance that is put forth by corporations; this helps explains the CEO pay level. They thought in order to attract the right candidate who will impact the performance of the organization is that they have to pay big. If this happens the shareholders of the company can get a better return on their investments. What has been justified as compensation for executives is to provide them with some form of stock grants as a form of incentive with

The goal of compensation in our case, is to attract and encourage executives to diligently pursue the interest of the shareholders that have a stake within the firm. Richard Long (2010) discuses the steps of formulating a strategic compensation plan which involves; the defining the required behavior, role of compensation, determine the compensation mix, compensation level, and evaluating the proposed strategy. If we want to attract the best and most talented individual to work as the executive of a firm, the package must be attractive enough to pull the individual already making millions to work at another firm. Some typical compensation packages for executive pays include; cash/base salaries, bonuses, stock options, and stock ownership (Richard, 2010). The executive compensation proposal from the board of directors / shareholders consist of mainly stock options, restricted stock, and long term- contracts and retirement plans, which shareholders use to motivate the CEO to maximize the firm value (Martin, 2006). Most of the wealth comes from the stock options, in which the CEO is more inclined to raise the firm’s stock value over time to produce better value for shareholders which in return, better compensation for the CEO. Martin (2006) also noted it is important the stock options are more for long term

CEOs play a role in dividing the wealthy from everyone else, assisting in widening the income gap in the United States. Harvard Business School conducted a study that found out Americans think CEO’s make around 30 times more than the average worker, this fact is almost true if we talked about the 1950s (Ferdman). In the 1950s, the ratio between a worker and a chief executive was 20 to 1 (Koehn). The truth is CEOs now make more than 350 times than the average worker widening the gap much larger than before. The main reasons for CEO pay growth since the 1990’s include base pay, bonuses, stock-based awards, and non-cash perks.

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

The issue of chief executive officer compensation is the subject of dilemma in the United States. This dilemma often triggers questions as to who decides what compensation is rewarded, as well as how compensation is rewarded. The government strongly resents the current pay-ration between CEOs and the average salary of American citizens. Since the financial crisis, people have shown their displeasure with the hefty compensation chief executive officers receives. But when stunning management failures and unprecedented destruction of shareholder value are brought into the light, it becomes increasingly difficult to defend current executive remuneration policies with these economic underpinnings. For example, the “Occupy Wall Street” movement began in 2011 in protest of the increasing disparity of wealth among other reasons lying within corporate America. The peak of CEO compensation came in 2001, and it is still difficult to argue whether the financial crisis of 2008 or the change in compensation strategy has slightly stagnated the exponential growth the started in the mid 1970’s.

It follows that aggregate pay and risk can be normally corresponded even in an established classical principle-agent model with exogenous firm risk where CEOs actualise the ideal exertion for the benefit of shareholders and where entrenchment is truant. To put it plainly, the outcomes of this research propose that firm risk is by all accounts a first-arrange determinant in the cross-segment of which firms repay their managers profoundly. This option account accentuates that managers’ compensation must be adjusted for working at high-risk firms. The entrenchment story for the most part suggests that enhancing administration and lessening the wedge between the interest of administration and shareholders would have restricted danger in the framework, and maybe even have maintained a strategic distance from the financial crisis (Cheng and Jose

This trend still lives on today surviving all kinds of socilogical reforms and the democratization of the modern world. Neverthless, in the modern world businesses follow this model of hierarchy on which each level down the steps has its own roles, responsabilities and rewards. The reward is obviously money and allowances exclusive to that specific level on the hierarchy.It surely wouldn't cause you a brain hemorrage to deride that these rewards increase as you go up in this model. CEOs are usually at the very top of the hierarchy in many companies, depending on what the company does and where in the world is based. You would expect the leader of such an important "clan" or organization to have responsabilities and tasks proportional to their salary. Oftenly, the case is that this individual fails to meet the company's goals, and it is quite unfortunate that companies do not do not do anything with their CEO in that particular situation other than raising his/her

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