...There has been widespread controversy in recent years about the amount of compensation CEO’s receive. CEO’s financial compensation packages were largely structured to incentivize risk taking in order to increase shareholder wealth (“Restraints on Executive Pay”, 2009). Yet, the 2008 financial crisis was mostly characterized by declining levels of company performance largely due to the increase of risk afforded to CEO’s by the attractiveness of lucrative executive incentives to perform. This essay argues that executive pay and its influence on company performance is both controversial and complex and concludes that executive pay has minimal influence on company performance and, when it does have influence, it tends to be negative. It is widely believed that companies and their shareholders suffer from poor performance unless the importance of incentives for executives – most notably through monetary and stock compensation – is realized (Jensen and Murphy 1990). The notion that the level and performance sensitivity of pay affects the quality of managers an organization can attract in a competitive labor market for executives seems, on the surface, uncontroversial. However, whether compensation policy is truly “one of the most important factors in an organization’s success” (p.139), as Jensen and Murphy (1990) assert needs further examination A series of empirical studies from a variety of industry, national, and time settings present evidence contrary to the conventional...
Words: 655 - Pages: 3
...Executive Compensation: The Ethical and Impact Challenge Executive Compensation: The Ethical and Impact Challenge Executive compensation is defined as the reward given to corporate executive employees for their job performance. Corporate executive employees are the higher echelon company employees and may include the chief financial officers, chief executive officer, upper level managers and the company president. Executive compensation mostly consists of base salary, bonuses, long-term incentives benefits, and prerequisites whose main purpose is to motivate the executives to steer the company to profitability and make decisions with the best interest of the organization. Executive compensation has been on an upward rise especially within the last few decades reaching to unprecedented levels. Worse still, executive employees’ salaries and benefits have increased at a significantly higher rate as compared to other employee’s compensation consequently raising controversy not only of the ethical issues but on issues of equity and efficacy of the high compensation in motivating the executive’s performance. The paper thus posits that the increased executive salaries are not only unethical but are not a reflection of executive performance nor are they correlated to executives performance and as such other options of motivating...
Words: 1620 - Pages: 7
...Executive Pay Strategic Issues and Problems: As a result of the current economic crises, many companies are experiencing massive financial losses. These companies are reducing salaries and cutting peoples’ jobs while executives are maintaining high compensations. Using tax payer’s money, the US Government is assisting these financially struggling companies through the Troubled Asset Relief Program (TARP). TARP was created to assist these companies to ultimately allow them to survive and prevent massive job loss. Tax payers are concerned about executives receiving a high and unjust compensation in comparison to other non-executives whom are suffering from layoffs and compensation cuts. Executive compensation is controlled by the companies’ boards that in turn work under the Chief Executives. The US Government is intervening by proposing plans to regulate the compensation of executives in these financially stressed companies. Evaluation and Analysis: Compensation of executives is not regulated or monitored effectively. Executives have the ability to use deceptive and manipulative practices to achieve higher unjust compensations. Boards justify the high compensations as rewarding performance, which is contradicting considering the financial status of these companies. People are becoming outraged as many are losing their jobs and are receiving salary reductions while executives are still making millions. The US government is imposing executive compensation regulations to...
Words: 666 - Pages: 3
...Management February 11, 2015 INTRODUCTION Executive compensation has been at the forefront of discussion for a long period of time. Analyzed by academics, highlighted by the media, questioned by Congress, and scrutinized by the general public, the topic warrants much debate. In the 1990’s, total executive compensation increased substantially as companies began offering stock option programs; CEO’s of S&P 500 saw an average increase of 150%. While many top U.S. executives continued to receive enormous compensation options throughout the economic downturns of 2001 and 2008, none was more apparent than those in the automotive industry. While the big three, comprising of General Motors, Ford and Chrysler, were facing insurmountable debt and possibly bankruptcy, top executives were receiving some of the highest reparations ever experienced by directors of the companies. The case study presented in Managing Human Resources, Sixteenth Edition by Snell and Bohlander brings to mind the fact that during 2011, Ford CEO, Alan Mulally, received $53.5 million in stock awards. Many discussions can be derived from this statement. However, a basic understanding of modern corporate compensation structures must first be realized. Along with understanding these compensation structures, knowledge of the views on economic rent and optimal contracting must also be developed. Corporate Compensation Structures Corporate compensation structures have changed drastically within the past...
Words: 1665 - Pages: 7
...Executive Compensation: Do you get what you pay for? Some would say that top executives are not overpaid. This side of the argument is based on the premise that top executives are paid well, but not overpaid. Many people see CEO pay packages but do not look further to see that a CEO's pay is not the whole story. What are the factors that might support a high executive compensation package? It is usually the most extreme cases of overpay that hit the press. Proponents of the argument that top executives are not overpaid state that most of the complaints about executive compensation center around extreme cases of overpay, and such cases blind us to the fact that the majority of executives are paid fairly. One example of this is the case of Lee Raymond, former head of Exxon Mobile. When he retired from the company in 2006, the price of gasoline at the pump was high, $3 per gallon, much to the consternation of consumers. Yet Exxon Mobile rewarded Raymond with a record retirement package--a "golden parachute," as it is known--to the tune of $400 million. The combination of exorbitant CEO pay and painfully high gas prices rubbed most observers the wrong way. A similar situation occurred in the case of Robert Nardelli of Home Depot. When Nardelli retired in 2007 with a pay package worth $210 million, the company he headed had just gone through several straight years of relatively poor performance. People wanted to know why the chief executive received such an exceptional payout...
Words: 2679 - Pages: 11
...To what extent does executive pay influence company performance? There has been widespread controversy in recent years about the amount of compensation CEO’s receive. CEO’s financial compensation packages were largely structured to incentivize risk taking in order to increase shareholder wealth (“Restraints on Executive Pay”, 2009). Yet, the 2008 financial crisis was mostly characterized by declining levels of company performance largely due to the increase of risk afforded to CEO’s by the attractiveness of lucrative executive incentives to perform. This essay argues that executive pay and its influence on company performance is both controversial and complex and concludes that executive pay has minimal influence on company performance and, when it does have influence, it tends to be negative. It is widely believed that companies and their shareholders suffer from poor performance unless the importance of incentives for executives – most notably through monetary and stock compensation – is realized (Jensen and Murphy 1990). The notion that the level and performance sensitivity of pay affects the quality of managers an organization can attract in a competitive labor market for executives seems, on the surface, uncontroversial. However, whether compensation policy is truly “one of the most important factors in an organization’s success” (p.139), as Jensen and Murphy (1990) assert needs further examination A series of empirical studies from a variety of industry, national...
Words: 809 - Pages: 4
...Shareholders Watchdog, Inc. 777 Wall Street New York, NY 10005 December 7, 2011 RE: Is CEO Compensation Fair? Dear employee, Accompanying this letter is our completed report that discusses the issue of the fairness of current CEO compensation. Although there are two sides of this argument, recent legislation and regulations for reform tend to support those who believe it is unfair. We have evaluated the current standards of CEO compensation and examined why both sides think they should prevail. There are some advantages that strongly support CEO’s huge salaries, including the following: * Provides incentives and motivates the CEO to obtain or surpass corporate objectives * Retains key-value leaders for the long-term, resulting in consistent corporate success * Creates a strong CEO confidence for him/her to reinvest in the corporation (bonds) Our overall research indicates that CEO compensation does not reflect actual performance in most cases. Many CEO’s are grossly over compensated (including stock options, bonuses, hedge funds, and other benefits). The “Golden Parachute” guarantee adds insult to injury. Based on our research, conducted from the UNLV Library periodicals database and online sources, we recommend the following: * Require corporations to adhere to sections 951, 953, 955 and 956 of the Dodd-Frank Bill * Maintain a collective (“Esprit de corps”) work force environment for all employees * Consult third party professional...
Words: 10991 - Pages: 44
...BUS 681 Entire Course Compensation and Benefits http://www.devryguide.com/downloads/bus-681-entire-course-compensation-benefits/ To purchase this tutorial copy and paste link in your browser. BUS 681 Entire Course Compensation and Benefits Week 1 Compensation Strategy. Discuss the general goals of an organization’s compensation system, including how a compensation strategy works to support the organization’s business strategy. Respond to at least two of your fellow students’ postings. Compensation Practices. Discuss the various factors that influence a company’s competitive strategies and compensation practices. Assess how a company can mitigate these factors using effective compensation practices. Respond to at least two of your fellow students’ postings. Journal Article Research and Analysis. Using a variety of research techniques, write a 3-5 page essay that summarizes the impact and affect of compensation within an organization. This essay should be based on research obtained through a minimum of three Journal articles. Week 2 Seniority and Merit Pay. Define the concept of seniority and merit pay plans, including the strengths and limitations of such plans within an organization. Discuss the job, organizational and/or other factors that should be considered when deciding between the two. Respond to at least two of your fellow students’ postings. Incentive Pay Plans. Discuss how incentive pay plans – both individual and group – motivate employees to achieve...
Words: 1284 - Pages: 6
...Section number: (1) Subject: Research on “Is Executive Compensation Fair?” Is Executive Compensation Fair? Executive pay (also executive compensation), is financial compensation received by an officer of a firm. It is typically a mixture of salary, bonuses, shares of and/or call options on the company stock, benefits, and perquisites, ideally configured to take into account government regulations, tax law, the desires of the organization and the executive, and rewards for performance. Over the past three decades, executive pay has risen dramatically relative to that of an average worker's wage in the United States, and to a lesser extent in some other countries. Observers differ as to whether this rise is a natural and beneficial result of competition for scarce business talent that can add greatly to stockholder value in large companies, or a socially harmful phenomenon brought about by social and political changes that have given executives greater control over their own pay. Executive pay is an important part of corporate governance, and is often determined by a company's board of directors. Types of compensation There are six basic tools of compensation or remuneration. * salary * short term incentives (STIs), sometimes known as bonuses * long-term incentive plans (LTIP) * employee benefits * paid expenses (perquisites) * insurance In a modern corporation, the CEO and other top executives are often paid salary plus short-term incentives...
Words: 3148 - Pages: 13
... ISSN 2152-1034 Gender Compensation Discrimination: An Exploration of Gender Compensation Gap and the Higher Education Connection Judith E. Grey-Bowen, Miami-Dade County Public Schools Donovan A. McFarlane, The Donovan Society LLC and Frederick Taylor University Abstract The purpose of this paper is to examine the gender gap and the potential factors that contribute to income inequality. Since the passing of the equal pay act, the median weekly earnings of women is still just seventy eight cents on each dollar that men earn (Center for American Progress, 2010). To put this in context, the pay gap in 1970 was sixty two cents and in 1992 it was seventy five cents (Institute for Women’s Research, 1993). Undervaluation of women’s work, occupational gender segregation, and discriminatory treatment in the workplace continue to hamper efforts to reduce the gender pay gap. A pay check is women’s and men’s most important source of income. Therefore, it is surprising, discriminatory and unfair to know that after both genders have worked satisfactorily on the same job; they do not receive the same pay. The gender pay gap is the best way to measure pay inequality between men and women. The authors discuss Gender Compensation Discrimination and examine the historical trends in pay difference, the various causes and the methods and paths considered for closing the Gender Compensation Gap. Key words: Gender Compensation Discrimination, Gender Compensation Gap, Equality, Rights and Privileges...
Words: 9335 - Pages: 38
...ARE TOP EXECUTVES WORTH WHAT THEY ARE PAID? Introduction “Republic Bank Executives getting million$- Workers Getting Crumbs!!”- This is at a time when Bank Directors fees are increased by 85 percent to nearly 1 million dollars in one year alone (Trinidad Guardian, February 25,2011). “While Republic Bank Biggies could look forward to a bigger parting gift than $10 Million and FATTER PENSION(BIGGER BANK/BIGGEST PROFITS=BIGGER GIFT/FATTEST PENSION) , a republic bank worker after 30 years service gets an average MONTHLY PENSION OF $2,400.00 and a pat on the back.” It is headlines like the one stated above that continues to bombard the media in recent times. Executive remuneration is one of the most hotly debated topics in the Human Resource (HR) world. Bergmann and Scapello (2002) argue that during the reign of Julius Caesar, centurions received attractive incentives. However, they stressed that longevity of an idea does not mean a lack of controversy surrounding it. In the aftermath of the financial crash and recession 2007-2009, the debate of the executive compensation again has surfaced to the forefront by the media and became the hot issue for academicians, researchers, regulators, policy makers and public. The purpose of this paper is to clearly discuss the issue of executive compensation by presenting arguments for and against it. While there has been an undisputed escalation in Chief Executive Officers (CEOs) pay and in comparison to the earnings of “average” workers...
Words: 1438 - Pages: 6
...Philosophy of Compensation Nikolette Arnold Letu How should a compensation plan reflect an organization’s mission statement and core values? The company’s mission and vision statements reflect its core values. For the same reason, having the right vision and mission statement is of outmost importance as it serves as a guiding principle for organizations to be able to stay focused on what they intend to do and how they should do it (Evans, J., 2010). Most organizations that have aligned their activities with their vision and mission statements have gained more than satisfactory results. Part of an organization’s strategic development is the setting of goals that coincide with their core business values. For example, a product manufacturer would ask, what is the purpose of making these products? How do I market these products? In the face of the competition, how would I know that consumers would buy these products? In addressing these questions, one would need to have a clear goal of what particular product he would manufacture and the intended market for the said products. Apparently, the product must have an edge whether in pricing, design and other value adding strategies in order to become sellable. In this regard, a manufacturer sets a vision of what he wishes to accomplish; should he want to become the leading producer of sports apparel. In order to accomplish that, he sets his mission, if it be producing the best sports apparel using only the best material...
Words: 3425 - Pages: 14
...CASE STUDY: The Debate over CEO Compensation The most visible and highly paid person in most corporations is the chief executive officer (CEO). CEO compensation is particularly important to firms for three reasons. First, the compensation package is likely to be important in attracting and retaining good CEOs. Second, the form of the pay contract is likely to help determine whether the CEO focuses on value maximization or some other objective. Third, employees throughout the organization carefully follow their CEO’s pay. Important morale problems can occur when employees think that the CEO is overpaid. For instance, employees complain bitterly when they are asked to take pay cuts because the company is in trouble, yet at the same time the CEO gets a big raise. Controversy over CEO pay has increased substantially in recent years. One charge is that the level of CEO pay is too high. CEO pay is so huge that people don’t believe they deserve it. It is easy to pint to many ECOS who report compensation in the millions of dollars (reported compensation figures typically include salary and bonus payments, as well as gains from the exercise of stock options). Consider the following two examples. Investors were outraged when E Trade Group Inc. disclosed it had paid out a $77 million compensation package for CEO Christos M. Cotsakos in 2001- a year in which the financial-services company lost $242 million. When Cotsakos pledged later to return $21 million, the complaints...
Words: 517 - Pages: 3
...1. Recently, the issue of CEO compensation has been a subject of contentious controversy. Heated discussions erupt surrounding the impacts of executive pay to company performance. Some parties claim that executive pay can avoid the agency problem, which refers to the possibility of conflicts of interest between the shareholders and managers of a firm (Amarjit Gill, Nahum Biger and Smita Bhutani, 2008), in order to align the interest of executive officers and company. However, some people reckon that such compensation cannot boost company’s performance since the increase in revenue of executive officers does not mean an increase in their working incentive. Executive pay is the combination of salaries, bonuses and shares. Under most circumstances, there should be a positive correlation between executive compensation and company performance. As a medium of transaction, money has a profound relation with quality of life and the vast majority yearn for earning a living wage. Hence, money is always deemed a motivation for enhancing workers’ performance. There is no doubt that most executive officers attempt to maximize their revenues when the policy of executive pay is implemented. However, whether they would put strenuous effort into the business, this remains a dubious, uncertain question. Some may still slack off at work due to some personal factors such as laziness and lack of devotion to the company. First of all, executive pay will lead to a rise in risky investments. As...
Words: 2760 - Pages: 12
.......................6 6SALARY IN GERMANY..........................................................................................................................8 7SALARY IN POLAND.............................................................................................................................8 8CONCLUSION.........................................................................................................................................8 BIBLIOGRAPHY.......................................................................................................................................8 Analysis 2 Introduction Compensation of employee is important and at the same time really difficult task. Important because it can contribute to growth efficiency and competitiveness in company. Difficult, because it arouses the most controversy and discontent of workers. An effective system of remuneration of employees enables to achieve the following tasks: - recruit and retain...
Words: 1293 - Pages: 6
