Executive Salaries And What It Means To The United States Essay

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.

CEOs usually get paid a lot more than any of their employees and it is believed that the ratio between the CEOs salary and the average employee salary has continued to increase throughout the years (Mackey, 2014). The increase in the CEOs salary is mainly attributed to two factors: First, the required skills and the high responsibilities that are associated with this position. Second, the number of qualified people who could fill such a position is really limited (Executive Compensation, n.d.). This does explain the

The U.S. economy is number one in the world as of today. How is America managing to be in this position? According to Daily Finance, “A shortage of workers in America with the skills to innovate is not something to view lightly. A quarter of a century ago, the consensus was that the U.S. would lose its status as the world 's largest economy by 2007, falling to third place behind Japan and Germany. Japan would be a $4.5 trillion economy, Germany $4 trillion and the U.S. $3.5 trillion.” This statistics shows that U.S. economy was expected to decrease because America was struggling with shortage of labor. But that did not stop the U.S. economy to fall behind since immigrants folded nonstop to America; another statistics show in 2007 only

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

I personally don’t believe that all executives are paid too much. Seeing people in this position from my experience has shown me how much dedication these individuals have put into their work. This isn’t one of those positions that someone can get thrown in. I know that most executives work from the bottom of the food chain to get to where they are today. Certain people may believe executives are overpaid.

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.

To start with, executive compensation has been a major and main target for criticism by the stakeholders as well as academics over the time of last several years. “Liberty Mutual’s longtime chief earned an average of nearly $50 million a year from 2008 to 2010, making him one of the highest-paid corporate executives in the country, according to state insurance filings reviewed by the Globe (Wallack, 2012)”. At first glance at this question I think; well we live in a capitalistic society where there are no limits on how much money people can make. Also if this CEO started the business and why shouldn’t they be entitled to that much money from the company, right?

Excessive top executive pay is viewed by the public as a direct linkage to economic inequality or disparity. Many opinions state that over the top pay stemmed from compensation trends and indicates corporate Board of Directors as business people earning similar salaries as top executives. Pozen and Kothari (2017) reported “More than 95% of the time, shareholders overwhelmingly approve the pay recommendations.” (Decoding CEO pay, para 2). Excessive pay distorts the views of the public and injures the trust of American workers. According to Pozen and Kothari (2017), companies, legislation, compensation committees, and stakeholders need to clearly articulate the basis of their decisions for setting excessive compensation.

There is data that anyone can Google which shows that inequality has increased over the last decades. The concentration of wealth is becoming denser on a very tiny parcel of the population and it seems there are no signs it will ever reverse. Taking a historical perspective, the increase in U.S. income inequality in recent decades is strikingly similar to the increase that occurred in the 1920s. In both cases there was a boom in the financial sector, poor people borrowed a lot, and a huge financial crisis ensued. Not discussed nearly enough is how there are more than 200 American CEOs/politicians in the Panama Papers. Perhaps corruption in America has become so normalized that people do not care or even understand the scale of inequality

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

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.

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

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

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