A growing list of empirical literature has attempted to investigate whether CEOs remunerations are related to the size of the firm and their performance and if corporate governance mechanisms have any significant influence on CEO remuneration. Undoubtedly the most documented association in the Executive remuneration literature is the rapport between CEO pay and firm size. CEOs of big companies are paid more. This is normally justified by the complexity of jobs performed by executive officers of large firm (Murphy, 1999). Specifically, more recent studies such as Smith and Watts (1992) and Rosen (1982) argue that CEOs of big companies need talented and competent managers with capacity and experience to perform very complex tasks because they …show more content…
They showed that the composition of the board is an important factor in determining CEO pay. Specifically, their research proved that CEO remuneration decreases with ownership of the largest stockholder, increase in risk of bankruptcy and the board of director’s ownership, while it increases with the tenure of the CEO, the percentage of independent directors on the board and CEO ownership. But, their findings provide no statistical evidence that a large board leads to an overcompensation of the CEO, while the CEO pay is higher if the CEO is also the chairman of the board in the same firm. Their findings also remain unchanged after holding constant other determining factor of CEO remuneration, such as company size, accounting and market based performance metrics. Moreover, empirical evidence from Cyert, Kang and Kumar (2002) research established a negative link between CEO remuneration and the ownership of members’ remuneration committee i.e. expanding their ownership decreases CEO’ s equity and option remuneration by 4 to 5 …show more content…
On Contrary to expectations, using data collected from 193 manufacturing, transportation, minerals and financial services listed companies in the USA, Boyd (1994) found that the ratio of insiders was negatively associated with compensation of the CEO . Lambert et al. (1993) documents also a positive association between CEO remuneration and the proportion of independent directors on the board and the percentage of the board composed. However, Finkelstein and Hambrick (1989) - using a panel of data collected on the chief executives of companies listed under 'Leisure ' in the Forbes Annual Reports on American Industry, in the years 1971, 1976, 1982, and 1983 – found that CEO remuneration is not associated with the proportion of independent directors. Randoy and Nielsen (2002) investigated the association between CEO pay, corporate governance structures and firm performance within Sweden and Norway in 1998 using data collected from 120 Norwegian and 104 Swedish firms that are traded publicly. The statistical evidence established from cross-sectional data, indicates that there is a positive association between CEO remuneration and the size of the board, non-independent directors ownership and CEO remuneration, Company outstanding shares market value and CEO pay. However, they failed to establish CEO pay-performance association. Core et al (1999) have also carried out an
Frydman, C., & Saks, R. E. (2010). Executive Compensation: A New View from a Long-Term Perspective, 1936-2005. Review Of Financial Studies, 23(5), 2099-2138.
...ith strong share price and some of them will get the organisation with the worst conditions of company performance. This is when the corporate governance bringing the right direction for organisation making best practice in deciding executive remuneration to sufficiently attract and motivate, eventhough to reach the satisfactory result there is a long way to go, involves time and efforts. The executives' remuneration at WH Smith especially for CEO is considered appropriate because it does not rely on agency theory alone but also considered the guidelines of the UK Corporate Government Code (2010) which is to attract, retain and motivate directors. To support this argument, “high pay itself is not evidence of inefficient contracts but may simply reflect the market for CEOs and the pay necessary to attract, retain, and motivate talented individuals.” (Conyon, M. 2006)
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.
... received stock valued at $75 million. As is the case with athletes and other individuals whose talents are rare and much prized, the CEO's pay package is calculated with an eye on the competition. Companies pay millions of dollars to a valuable CEO, one who they judge will produce wealth for the shareholders, in part so he will not be hired away by a competitor.
Imagine being in a world where people are paid in cash bonuses, stock options, or generous severance pay when fired from their job due to a company merger, are asked to leave, or choose to retire. This happens to be a reality for many CEO’s and top executives of companies. We live in an economy where mergers and take over’s have become common, and to allow this option for the highest paid employees of a company is arguably unfair. While researching golden parachutes, I formed questions due to the circumstances surrounding this executive option. For example, why should CEO’s, who live very comfortably, be given a compensation package for losing their position due to a company merger or retirement when employee and shareholder’s futures are at stake? Is it fair for the rich to get richer when numerous employees below top executives are dealt the same fate from a merger and shareholders’ investments are at risk but neither receive a form of additional compensation? Of course, there’re those who support the issuance of golden parachutes, arguing they can persuade a possible company merger to not take place due to the costs associated with a top executives golden parachute package. Another supporting point for golden parachutes is, they can make it easier for higher up executives, like CEO’s be absorbed into the future merged company. I will be addressing the point of whether CEO’s and other executives deserve to be awarded a Golden Parachute option by their company. As well as a brief background of Golden Parachutes and my stance on them. They’re a very important part of our growing economy and will always be considered in a merger/takeover if awarded to executives.
Gomez-Mejia, L. M.-K. (2003). The determinants of executive compensation in family-controlled public corporations. Academy of Management Journal, 46 , 226-237.
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.
There is much debate about the role of outside directors as effective monitors of the firm. Two early studies that address this issue are Fama (1980) and Fama and Jensen (1983). Fama (1980) in their seminal work show that board of directors can be efficient monitors of an organization. Fama and Jensen (1983) argue that outside directors have the incentives to develop reputation and signal the markets as efficient monitors of the firm . The crux of the argument on outside directors are whether the outside directors, support the shareholders or are likely to be aligned with the interests of the management. Studies such as Mace (1986), Patton and Baker (1987), and Jensen (1993) argue that since top management can influence the appointment of an
CEO compensation has been a heated debate for many years recently, and it can be argued that they are either overpaid or that there payment is justified by the amount of work they do and their performance. To answer the question about whether CEO compensation is justified it must be looked at by the utilitarian viewpoint where the good of many outweighs the good of one. It is true that many CEO’s are paid an exorbitant amount of money; however, their payment is justified by the amount of money that they bring back to the company and the shareholders. There are many factors that impact the pay that the CEO receives according to Shah et.al CEO compensation relies on more than just the performance of the CEO, there are a number of factors that play a rule in the compensation of the CEO including the fellow people who help govern the corporation (Board of Directors, Audit Committee), the size of the company, and the performance that the CEO accomplishes (2009). In this paper the focus will be on the performace aspect of the CEO.
In order to answer the research question, I collected data to define and actualize the variables of interest. The first order of business was to collect data on the dependent variable, CEO total compensation. After selecting thirty-seven of the top Fortune 100 companies and identifying each company’s CEO, I was ready to begin collecting. The Securities and Exchange Commission’s EDGAR system provided a perfect source for the best identification of each CEOs total compensation. Every company must provide an annual proxy statement, labeled DEF 14A, which contains a summary compensation table of the top five earners. In every company examined, the CEO happened to fall into that category, as expected. Total compensation includes salary, stock incentives, bonuses, and other compensation. To simplify the data, I converted CEO compensation in millions of dollars. Although the summary compensation tables include earnings from the last three years, I chose the total compensation paid to each CEO at the end of the 2015 fiscal year.
The projected remuneration of the board, is at the best interest of the business and its shareholders from a growth perspective, because it helps in retaining and motivating committed senior executives (H&M, 2017). Senior executives will be rewarded at what are considered by the business to be competitive market rates. To set levels of compensation, the criteria is based partially on the employee’s skills, their duties, performance and experience. Fixed salary is the largest portion of the total remuneration (H&M, 2017). The forms of compensation, motivates the senior executives to deliver their best and to guarantee the good sustainable and financial development of the H&M
It is concluded that neither of the above proposals are adequate in that any practical benefit that results from the proposal such as employee and shareholder engagement are outweighed by the theoretical impact of increasing the overlap of the organs which would alter the structure of company law. The legal side of directors’ remuneration appears to be sufficient with the directors’ duties legislation acting as an efficient preventative measure for the problems that directors’ remuneration creates. Furthermore, shareholders already must approve several payments as such this could be strengthened to tackle the issue and employees are to some extent taken care of within s172 as such it is these sections that need development rather than directors’ remuneration.
Board membership carries responsibilities that involve a lot of risks, and no body will be motivated to set on the board unless there are some justifiable lucrative rewards for being on the board. So directors, whether executive or non executive must be remunerated however the vital question will be how?
K, . N., ER, w., DAVID, K., PAUL, M., WALTER, O., & EVANS, A. (2012). Corporate governance theories and their application to boards of directors: A critical literature review . Prime Journal of Business Administration and Management (BAM), 2(12)(2251-1261), 782-787.
For a lot of people, a dream job includes having a high salary, having a high status along with being famous so you can afford a big nice house, perhaps a car from a well-known brand and retiring at an early age. I Think that being a CEO includes those things but the most important thing for me is having a high salary. Why I think that is because I want to retire at an early age and I don’t want to work until I am 65 or 70 years old, I do also believe that with having a high salary along with a lot of money it also means you can be happy more often.