Law 531 Week 9 Final Paper

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.

According to a news report written by Catherine Ruetschlin, explains everything needed to know about the economy and the CEO-to-worker pay with the failure it holds. “The report, by the public policy group Demos, concludes the fast-food industry has the most extreme pay disparity of all the sectors in the U.S. economy, with a CEO-to-worker pay ratio now exceeding 1,000 to 1. By comparison, the ratio in the retail sector is about 304 to 1, meaning the CEOs in this sector make about 304 times the income of the average worker. And construction company CEOs make about 93 times that of the average worker.” These companies with extreme pay disparity won’t be losing any money if they raise their minimum wage to $9. The comparison of how much a CEO makes to an average worker is ridiculously large, and the fact that some of these CEO’s are complaining about paying their worker an extra two dollars an hour for their efforts and labor is

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.

In Peter Eavis’ article “Executive Pay: The Invasion of Supersalaries” the conflict of CEOs and top executives outrageous pay grade is discussed. Even though the “compensation machine” of Corporate America is running smoothly, there are multiple negative and dark undertones. In fact, many people believe that these shocking salaries are the roots of inequality within America. Currently, some CEOs are being compensated millions and millions of dollars as their normal annual salary. Even though the current executive compensation system focuses on performance and can “theoretically constrain pay,” there is nothing stopping the companies from giving their CEOs more. According to the Equilar 100 C.E.O Pay Study, “the median compensation of a

By Lawrence Mishel and Alyssa Davis • June 21, 2015. "Top CEOs Make 300 Times More than Typical Workers: Pay Growth Surpasses Stock Gains and Wage Growth of Top 0.1 Percent." Economic Policy Institute. N.p., n.d. Web. 09 Sept.

While these citizen protests and legislative actions could be an overreaction to a few isolated cases of executive compensation excess, the data suggests otherwise. According to the AFL-CIO (2013), executive pay has increased dramatically over the past several decades compared to worker compensation. In 1982, the pay ratio between executives and workers was 42:1, but by 2012 it had increased to 354:1. This 8.4-fold differential in compensation suggests that the productivity of executives has also increased 8.4-fold relative to productivity of workers. If executive pay is positively correlated with a firm's bottom line, then higher pay should predict success. Unfortunately, researchers have found the opposite to be true.

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.

“In Japan, a typical CEO is well paid, but he or she earns only 11 times what the company’s average worker earns.” (Bredeson) “In the United Kingdom, the multiplier is 22.” (Bredeson) “In the United States, the multiplier is substantially higher, a generation ago; it was already 40 times the average worker’s salary. Currently, it is 150-200 times higher.” (Bredeson) I believe that this is outrageous and that no CEO or executive level employee should make anywhere near 150-200 times more than the average worker’s salary and even more so for non-profit company’s. I believe it should be closer to the other average amount that a typical CEO is paid, like Japan and the United Kingdom receive because they are working hard but they do not need a salary 150-200 times more than the average employee. It is a myth that Non-profits are mainly staffed by volunteers. In fact “most non-profits are staffed by paid professional staff. Some organizations also employ volunteers in addition to their paid staff, but many don’t use volunteer help at all, preferring instead the accountability of paid full-timers.” (Green, A) It is also a myth that caring about money is frowned upon. “It’s the organization itself that isn’t making

According to a report created by Ruetschlin (2014) stating that compensation practices that is seen within companies of fast food industries is “out of line” with rest of our economy. We can see that CEOs have the greater and greater economic rewards while workers don’t seem to reap those rewards so luckily. In Ruestschlin studies, she was able to piece together that CEO average pay since 2000 has quadrupled in numbers than the typical workers. That in 2013, the average CEO took home a whopping $23.8 million dollars unlike typical works that doesn’t even have that much if we were to combine each worker in every food establishment. We can

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

When it come to the other benefits, I think CEOs should receive additional compensation for the effects they cause. They should receive additional rewards when the organization meets their strategic goals and increase profits. Although the CEO should be compensated for their risk, the employees should also be rewarded. The employees are the backbone of every organization, and production would cease in their absence. Therefore,

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?

Income inequality remains a provocative buzzword in today’s business world. As I pondered and prepared for this week’s written assignment I was reminded of the Occupy Wall Street movement that occurred several years ago. That movement was concerned with economic inequality and wealth distribution within the United States, specifically between the wealthiest 1% of the population versus the other 99%. That wealthiest 1% of course includes many corporate CEOs. It is no secret that a corporation’s executive compensation has traditionally exceeded the compensation of the average worker. This generates questions about whether this difference is ethical and whether or not this is a valid reward distribution system. After my readings and research, I am in support of the current executive compensation model for being both ethical and acting as a valid reward distribution system.

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

According to Henderson and Fredrickson (2001), it is necessary to distinguish between economic views and behavioral views that embody various pay gap theories. Economic perspectives emphasize competition while behavioral perspectives emphasize cooperation (p. 97). Relative deprivation theory states that when lower level employees feel like they are receiving less than they deserve, it can lead to adverse behavior (p. 97). Tournament theory proposes that CEO pay gap promotes competition and the gap between successive ranks increases with hierarchical level (p. 99). This theory relies on strong incentives to justify pay gap and encourage positive behavior from employees, however, this approach favors the individual so for organizations that require coordination and cooperation, this can elicit self serving behavior. When collaboration is vital to an organization, the allocation preference theory proposes that pay is distributed relatively equally to maintain social harmony and discourage destructive employee behavior (p. 98). Another key consideration is how dominant cultural values impact organizational structure. According to Tosi and Greckhamer (2004) "national cultures emerge from a broad set of forces which results in a dominant cultural value set and is