Executive compensation has come under increasing scrutiny in recent literature in the wake of the growing publicity surrounding managerial failures and executive self-interest. Financial experts have long been examining the problem of aligning the performance of executives with their salaries and benefits. Public discontent with the visible top-heaviness of the compensation structure has brought this issue into the spotlight throughout the business world. Experts point to the flaws of traditional payment schemes and offer a number of different solutions. Shareholder value and the success of the firm can be significantly affected by executive performance. Hence, understanding the advantages and costs of the current trends in executive compensation is crucial to the compensation committee of a Fortune 500 corporation.
The compensation committee has a difficult task upon its shoulders. It must construct pay programs that attract and retain the best talent to address the individual organization’s needs. It must design a strategy that generates superior returns for investors, appropriately measure managerial performance, and institute a pay practice which is fair to both employees and shareholders and which really drives business results (Mercer p.4). There is abundant theory and research on the strategies thought to accomplish these goals, and the emerging trends in executive compensation seem to be highly successful.
The growing public criticisms of ultra-high executive pay are not unfounded. According to Mr. Meizhu Lui, “the ratio of CEO pay as a multiple of average worker pay has grown tremendously, from 41 to 1 in 1960 to 411 to 1...
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...an Resource Consulting. (Jan. 26, 2004). “Responsible Executive Compensation for a New Era of Accountability.” Perspective. Retrieved October 14, 2006, from http://www.mercerHR.com/responsibleEC
Mercer Human Resource Consulting. (Aug. 9, 2004.). Tackling the Challenge of Aligning Pay with Performance. Perspective. Retrieved October 14, 2006, from
Parrino, Robert. (2002). Rewrapping the package: Managerial incentives and corporate governance. Texas Business Review, 1(5). Retrieved Sept. 27, 2006, from the Business & Company Resource Center database.
Traichal, Patrick A., George W. Gallinger, and Steve A. Johnson. (1999). The relationship between pay-for-performance contracting and external monitoring. Managerial Finance, 68(21). Retrieved Sept. 27, 2006, from the Business & Company Resource Center database.
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