The Compensation Of Chief Executive Officers 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.

The most important leadership hat of the president is the Chief Executive Hat or power. In respect to this hat, the president of the United States has the power to enforce laws of the United States, create policies, appoint federal judges, and fires or hire officials or representatives within the executive branch. This hat is important because it enables the president to make decisions that help maintain the economic stability as well as the political stability of the country. For instance, by enforcing laws and appointing federal judges, the president is able to make decisions that help maintain stability within the United States. In turn, this enables economic indicators such as businesses to flourish efficiently.

Executive Compensation. I’m in agreement with Thomas Piketty that the one cause of rising inequality in the United States “the rise of supersalaries” for top executives (Piketty & Goldhammer, 2014, p. 298). The average American estimates CEO to worker pay ratio at about 30-to-1, which is more than 4 times what they believe to be ideal. The career review site Glassdoor reported from 2014 data that the average pay ratio of CEO to median worker was 204-to-1 and that at the top of the list, four CEOs earn more than 1,000 times the salary of their median worker with the very top pay ratio of 1,951-to-1. In some cases a CEO makes in one-hour what it takes the average employee six-months to earn. In comparison, the Washington Post reported for the

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

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

See, Bob Reich isn't the just a single to notice disparity. Indeed, even most corporate chiefs are worried that soaring CEO compensations are askew with corporate benefit, and also normal worker wage. As working mom Nancy Rasmussen says, it just doesn't seem right. "I took a pay cut of $12 an hour. My benefits have gone down," Rasmussen says. Her voice cracking with emotion, she asks, "If you have millions of dollars, why do you need that little bit that I have?" We see it all around us: A CEO gets a huge bonus the same year he lays off hundreds of

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

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.

The economy of the United States is by far the largest and most powerful economy in the entire world. The average family income is roughly $40,000 a year and our GDP (Gross Domestic Product) is well over 10 trillion dollars. The next closest country is Japan with 4 trillion dollars of total GDP.(Johnson & Wales: Economics) The United States has so many large corporations it takes someone to run each one and it also take a lot of money to pay someone to be in charge of each one.

Chief Executive Officer pay in the United States has risen dramatically. In the past three decades the salary of a CEO has risen significantly beyond what can be explained by variables such as firm, size, performance, and industry classification (Bebchuk & Grinstein, 2005). According to research, the CEO pay at the nation’s top 500 largest companies averages about $10.9 million a year. The CEOs are also receiving an additional $364,000 in perks. It was estimated that the average CEO makes 319 times more than the average worker in 2008 compared to a multiple of 42 in 1980((Anderson, Cavanagh, Kliner, & Stanton, 2005). CEO

The practice over overpaying company CEOs in contrast to the general employee population is not considered a valid reward distribution system. As reported in the “The State of Working America”, the ratio between CEO salaries and average company wages was approximately 19.2 to 1 in 1965. In 2011, this ratio was nearly 220.2 to 1 (Mishel, Bivens, Gould, and Shierholz, 2012). Per Mishel, Bivens, Gould, and Shierholz (2012), this ratio has experienced a 177.15-point decrease from the year 2000, when the

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