This paper attempts to summarize a theoretical perspective regarding the research on executive compensation as relates to industry practices, trends, and pay structures for chief executive officers (CEOs) and special groups. Topics discussed will focus on the evolution and transformation of executive pay, internal and external equity and how it relates to executive compensation, ethical considerations, and proposed solutions towards establishing effective compensation structures within the ranks of executive management. Introduction Inequality in executive compensation has sparked interest of labor right organizers and media outlets presenting a comprehensive argument about the failure to design and implement pay models …show more content…
Studies have concluded that executive compensation was somewhat steady from 1930’s thru 1950’s as most structures consisted of a base salary and fair and equitable bonus based on performance. It was not until the 1950’s when executive pay structures prompted the inclusion of stock options as the market was thriving from the post-war economy. That trend continued to slowly expand with more company options, increased base salaries, and non-monetary perks for another forty years without significant counterpart disparity. However, in 1993 the U.S. tax code incorporated a deduction cap of one-million dollars while leaving a loophole to the exclusion of performance-based income. This loophole encouraged companies substitute base-pay models with compensation packages that constitute as deductions, ultimately allowing for companies to manipulate the payroll tax system. Performance based income typically includes forms of income such as stocks, bonuses, and profits tied to market shares. Because companies could re-route executive pay through a tax loophole, executive pay structures swiftly became misused resulting in increasingly high annual earnings for executives. Consequently, compensation disparity between organizational counterparts within U.S. companies grew at unprecedented rate and continues to grow today. This has led to emerging consensus about the fairness of executive pay structures questioning the overall effectiveness towards deriving motivation, and benefits for
D. Teather: The Guardian, US executive pay goes off the scale. Retrieved Feb 10, 2011 from: http://www.guardian.co.uk/business/2005/aug/04/executivesalaries.executivepay2
Mandelbaum, Robb, “There is a Salary Gap when pay themselves”. New York Times. Ed. Abramson Jill, Pub: New York City, February 18, 2014
In April 2010, KK BB, the CEO of Marshall & Gordon, a leading public relations firm met with the firm’s leadership committee off-site in Miami. This off-site brought together Marshall & Gordon’s executive committee, practice and regional heads, and senior HR officers to discuss on redesigning the firm’s compensation system. A global advisory taskforce, under the direction of an external consulting firm, had spent three months collecting and analyzing data. Marshall & Gordon hired external specialists to design the new performance management program. The specialists proposed that the senior managers and human resource form a global advisory unit together with Marshall & Gordon partner to represent the firm’s five regions of the firm and lead the design process. The advisory unit surveyed all consultants in February in order to understand their way of thinking about the fairness, worth, and effect of the current performance management system. Majority of the interviewees responded to the corporate surveys implying that the subject was topic was especially exciting to them. Interviews gave insights on present and prospective business plans and direction. The survey also showed that specific focus across certain employee populations should be given. Six current hires from key competitors were also interviewed to comprehend competitor pay practices and compensation program structures. Further focus groups discussions and key information interviews enabled the taskforce’s to understand the needs of certain groups within Marshall & Gordon’s worker population. The survey culminated with the taskforce conducting interviews of 20 partners and principals togeth...
When a company hires a new Chief Executive Officer (CEO), the company must decide how to compensate the CEO. There are many ways of compensating CEOs, and they all have advantages and disadvantages. These can include things such as salaries, stock options, bonuses, and other benefits. How the company decides to arrange all the things for its CEO can be very crucial to the company’s success. One of the most interesting decision the company must make is whether to give its CEO a golden parachute, and what the company decides to offer as a compensation package, can be one of the most important decision the board of a company makes.
Sumo, V., & Weitzman, H. (2013). Are CEOs overpaid? The case against. Retrieved from Capital Ideas: http://www.chicagobooth.edu
The criticism of Chief Executive Officer salaries comes from a chorus of shareholders, the business media, policy makers, and academics. The criticisms focus on CEOs not only because they are the highest paid executives but also because their compensation sets the standard for those beneath them. Whether CEOs are paid too much is highly contested. Some shareholders, politicians, and the public believe that executives are overpaid, while other shareholders and board members disagree. What cannot be argued is that American CEOs make more money than CEOs in other countries - due mostly to greater reliance on incentive pay – and increasingly larger amounts than the average employee and their subordinates. Because of this, it is clear that the rise in executive salaries contributes to the skewing of income distribution in the United States and furthermore, income inequality.
Executive compensation has been studied for many years. While the average person probably does not think about it on a daily basis, it is necessary to watch trends. Tracking the amount of money they make as well as the bonuses, stock options, and other benefits shows how these executives are making such high rates of pay compared to the ordinary worker. Tracking how much an executive makes began in the 1930’s. Since this time not only has it been tracked but there have been many changes in the type of tracking, the tax laws and what is available as compensation. This paper highlights the changes that have occurred since the early 20th century until today and changes that still need to occur.
Lazear, E. (1989). Pay equality and industrial politics. The Journal of Political Economy, 97 (3), 561-580.
Since the 1980s, it has been established that there must be a strong association between employee compensation and business strategy (Hufnagel, 1987). However, the development of strategically-oriented compensation scheme is a complex endeavor that requires consideration of numerous factors. Some of these elements are evolving employee needs, changing employee and societal demographics, the changing sexual composition of the labor force as well as transforming qualifications of job applicants (Dawson, 1995). It cannot be emphasized enough that strategic compensation enables an organization to align employee interests with those of the owners of the company (Santone, Kevin, & Britt, 1993). Indeed, numerous studies attest that effective compensation schemes can be tools for employee motivation, high levels of which can lead to excellent organizational performance. However, a sad reality is that not all organizations have strategic compensation programs that seek to align employee interests with that of the enterprise. This paper presents a proposed compensation scheme for Nike, Inc. (Nike), a company that has had issues with employee compensation, particularly for offshore factory workers (Taibi, 2013).
In 2003 the average pay for CEOs at 200 of the largest U.S. companies was $11.3 million--but there are a good number whose compensation packages approach the $100 million mark. Faced with these figures, Americans from all walks of life--who revile CEOs as greedy fat cats--are overcome with bewilderment and indignation. Astonished to learn that what an average worker earns in a year, some CEOs earn in less than a week--people ask themselves: "How can the work of a corporate paper-pusher be worth so many millions of dollars?"
Lazear, E. (1989). Pay equality and industrial politics. The Journal of Political Economy, 97 (3), 561-580.
The main objective of this study is to Identify and analyze the relationship between executive compensation and the sustainable future of the respective organizations as a result of granting these compensations. This is considered in a broader scale where not only the company but also the employees and the stakeholders of the company are considered.
Remuneration management is defined as the sum received for an employment or service delivered, this includes the money received on a monthly basis as well as benefits given as rewards (investopedia,para.1 ). Individualism need to be taken into account when implementing these remuneration structures or reward schemes, equal pay plays a role in balancing earnings among the diverse workforce (Shen, Chanda, D’Neetto and Monga,2009,p.241). The Woolworth’s Holdings uphold remuneration policies which have the purpose of making sure to attract and hold on to the best talent, that they are congruent with the strategies of the company and are the determinants of performance during the short and long phases. The policy considers the board members and the employees. This policy manages employees of the company by giving...
EXECUTIVE SHARE OPTION SCHEME : It is designed to provide focus on longer term share price growth and reward the sustained delivery and quantity of earnings growth. This problem a rises when a public company pursue its own self economy interest ahead of shareholders interest. Thus executive directors or the board has several roles they play in the firm (supervising, planning, controlling etc.) which includes setting the pay for executive management. The same board is also the president, and part of executive management team that earns the compensation package. It’s in the chairman’s economy interest to press the other directors to adopt a generous pay package for executive management. When a compensation consultant is even brought into the firm, they are hired by the executive management and so the information they receive is from the executive management so amendment could be made to suit the executive management, firm putting in place measures that shows how fair the share option is will resolve agency
In today’s highly competitive industries, companies are forced to find ways to separate themselves from their near peer rivals. Organizational success depends on it. Every strong company views their greatest resource as their workforce and the contributions they make daily in achieving strategic objectives. It is critical for a company to find and sustain top candidates to build a high-performance team. One way to successfully recruit desirable applicants is by offering a relevant and generous compensation and benefits plan. Pay and benefits may be the deciding factor between an employee signing with a company or going to their largest competitor. Human resource managers within the business are responsible for creating a flexible and attractive pay and benefits package that is appealing and comparable to market standards, but within fiscal limits. An organization’s competitive advantage is driven by their compensation strategy and its effect on employee motivation and retention.