Responsible Executive Compensation for a New Era of Accountability

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

Compensation systems can take on many forms, all of which have positives and negatives related to it. However, certain components are noted to be determinants of solid compensation plans. One agreement of a solid compensation system is the use of incentives. “Clearly a successful companies set objectives that will provide incentives to increase profitability” (Needles & Powers, 2011). Incentive bonuses should be measures that the company finds important to long-term growth. According to Needles & Powers (2011) the most successful companies long term focused on profitability measures. For large for-profit firms, compensation programs should offer stock options. The interweaving between the market value of a company’s stock and company’s performance both motivate and increase compensation to employees As the market value of the stock goes up, the difference between the option price and the market price grows, which increases the amount of compensation” (Needles & Powers, 2011). Conclusively, a compensation plan should serve all stakeholders, be simple, group employees properly, reflect company culture and values, and be flexible (Davis & Hardy, 1999; The Basics of a Compensation Program).

The CEO’s compensation should be set on how well the firm performs and should be awarded based on the performance of the stocks in the long run. It is easier to measure performance by the growth rate in the profits that have been reported since intrinsic value cannot be fully

I hope this finds you well. As head of the executive compensation committee I am writing this recommendation in order to reach a unilateral consensus on the adequate amount the new CEO just hired should be paid. I want to concisely go over the pros and cons of attempting to follow industry standards and will debrief a compensation plan I have put together that reflects our values as a company.

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

A well-articulated compensation philosophy drives organizational success by aligning pay and other rewards with business strategy. It provides the foundation for plan design and administration and anchors current and future plans to the company's culture and values (Kaplan, 2006, p.32). Recognizing and rewarding achievement is the cornerstone of the company A’s compensation philosophy. The mission of the company is to attract, select, place and promote all individuals based on their qualifications. The company believes that performance-based compensation helps attract, develop and retain talented professionals. In addition to base pay which based upon local market conditions and targeted to be above market, the company provides the following types of potential compensation to reward performance:

Directors have awarded compensation packages that go well beyond what is required to attract and hold on to executives and have rewarded even poorly performing executives. These executive pay excesses come at the expense of shareholders as well as the company and its employees. Furthermore, a poorly designed executive compensation package can reward decisions that are not in the long-term interests of a company. Excessive CEO pay is essentially a corporate governance problem. When CEOs have too much power in the boardroom, they are able to extract what economists' call "economic rents" from shareholders (Economic rent is distinct from economic profit, which is the difference between a firm's revenues and the opportunity cost of its inputs). The board of directors is supposed to protect shareholder interests and minimize these costs. At approximately two-thirds of US companies, the CEO sits as the board's chair. When one single person serves as both chair and CEO, it is impossible to objectively monitor and evaluate his or her own performance.

Ethically speaking, let’s analyze the disparity regarding overall compensation of that a Chief Executive Officer (CEO) and that of whom are front line employee. Compensation, which is the total of all rewards provided to employees in return for their services takes on a

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.

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

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

The compensation of chief executive officers and the methodology used to determine it has become a major topic of debate in the business world. Many people wonder not only why and how it has gotten to be so high, but also why it isn’t distributed amongst other major contributors inside the company, or even amongst the lower ranks of the workforce via an increase in wage rates.  One of the more recent theories that provides an explanation to the increase in the pay of chief executive officers is the size of firms relative to earlier years in business development.  Xavier Gabaix (2006, p. 50), states that his, “central equation predicts that a CEOs equilibrium pay is increasing with both the size of his firm and the size of the average firm in the economy.”  This theory discusses largely that as the scope of the economy increases, it is only natural that CEOs be compensated at a higher rate.  The reasoning behind this is that the CEOs are managing companies of higher value, and thus are in theory putting more work and effort into their companies as well.  Based off this theory, it makes complete sense to do this.  However, I have set out to see if I can discover any other concrete reasoning behind these often astronomical salaries, and if so, determine if this reasoning is useful in determining salaries across a wide range of industries and structures of very successful publicly traded companies.

For years CEO’s have been making larger salaries in compression to the employees that work for the company. How the salaries are decided can be one of two ways. Either by how much money the company brings and gives to the shareholders or by how well the CEO runs the company. The question becomes which was is not only morally but also ethically right. CEO’s will do whatever is necessary to make more to please the shareholders and give the shareholders fast money quickly? By doing this the CEO’s or executives may use morally and unethical practices. If the CEO’s put in the hard work