The roles for these two acts are to monitor the trades and mutual fund trading, stocks and bonds of companies and financial professions and also to monitor any fraud or internal deception going on. The Acts required companies to report the compensation of the top three executives. This brought about many companies finding loopholes to earn higher salaries. One of which was called performance pay, which was considered a bonus for a job well done. In hindsight this act established very little to regulate CEOS high pay. CEOS’ are now taking many risks and taking part in questionable methods to earn a bigger performance
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
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
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
Stock options are another main concern and are based upon the performance of a company. A lot of companies are in a low return and low compensation which then caused bad business and it’s about 400 times that amount. I believe the government is trying to tighten down on excessive executive compensation with implementing salary caps. Executives are unrealistic with common life and way of living therefore; they do not take any consideration with the underdogs of the company or the world. The economy does have hope but it’s a long way from being stabilized once again.
Federal governance in executive pay is essential to a stable and healthy economy. I offer that the issue of Federal governance in executive pay is bigger than equity in compensation. “Taxpayers and politicians and others disapprove of these levels of compensation precisely because the leaders of these firms, in the words of Treasury Department officials, nearly caused the financial system worldwide to collapse.”
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.
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.
The second compensation package was not well designed nor did it help define what the corporate strategy would be. For a second time the compensation package focused on maximizing shareholder’s wealth and didn’t take into consideration the stakeholder’s position at all. Dunlap’s package was deeply weighted in company options ($3.75M). In fact it was weighted heavier than before. The stock grants were
It’s no secret that the new administration has very different governance practices and priorities. Congress and CEO Pay Ratio regulations are being examined and the SEC has opened discussion on itthe topics for discussion. Change is here and boards will likely encounter unforeseen challenges.
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 paper looks at the opinions and issues involved within executive compensation. This is important because executive compensation is such an integral part of a company or organization’s functions. Executives are the ones tasked with making the decisions within an organization, and their pay can sometimes be linked to how well or how not well their decisions pan out. To look at these opinions, research and high quality analyses from various data sources were used. Some of these sources included the in-class textbook, “Compensation” by George Milkovich, Jerry Newman, and Barry Gerhart. While other sources used, included peer reviewed journals as preferred by the professor. All of these sources were used to show the relevance between executive compensation and compensation management as an entirety. The results are across the board; there are issues and opinions that clearly contradict each other and individuals take many different stances on the topic of executive compensation. The conclusion is that this will continue to be an ongoing and sensitive topic to discuss within organization structures and plenty more research and data will arise for individuals to gain further and deeper understanding of the complex nature of executive compensation.
It is normal for executives to receive salaries and bonuses higher than other administrative levels, but in the end, they must be subject to clear and practical standards, and these differences are within controlled limits to avoid any negative effects on the organization's march and morale. It has been proved that market forces are not the main factor in determining the salary levels of executive managers. Therefore, the organization should find the appropriate and efficient ways to reduce the gap between them and the salaries of other sectors in the organization to maintain the morale of other employees and their loyalty to the
Executives and those responsible for misdeeds should have been subject to significant clawbacks of compensation. If the reason they misbehaved and took inappropriate risks was to raise compensation, losing that compensation would be an appropriate punishment.