CEO COMPENSATION 4
ACEO is usually in charge of a firm and he or she makes most of thebusiness correlated executive decisions. Apart from their leadership,social, and management skills, the compensation of CEOs also varyfrom the average employees. CEO compensation involves the salariesand non-financial compensation or awards that an executive in a givenorganization receives for their service or performance. In mostcases, CEO compensation is a mixture of bonuses, grants, stockoptions and ownership, as well as salaries. In the past few decades,CEO compensation has been increasing rapidly when compared to theother employees resulting in an intense debate concerning the highexecutive pay. Research shows that in 2010, while the averageemployees’ pay rise was by 2.1 percent, the executive’s rate wasat 27% (Bloxham, 2011). The controversies on executive compensationspur from questions about the configuration or misalignment ofincentives between the firm’s shareholder and non-owner CEOs or onthe justice of their pay levels relative to other workers. Therefore,there are different views on CEO compensation resulting incontroversial debates because of the disparity of pay amongemployees, morale and loyalty encouragement, and the market price fordirectors.
TheVarious Views of
Oneview on the CEO compensation issue is that it contributes to paydisparity among employees. As such, it negatively affects the moraleof the other average employees. Consequently, this affects theirperformance in the firm, as the ordinary workers feel disconnectedfrom the CEO (Bogle, 2008). The high pay variation places the averageemployees and the executive in different worlds. As a result, theother employees are detached from the executive and are often notwilling to share with CEO what needs to be improved or fixed. In mostcases, the average members of staff have the attitude that the topmanagement does not understand their situation or work environment.Moreover, the high pay disparities also have a significant impact onthe effectiveness of the CEO. Through the disconnection that occursbetween the executive and average workers, the CEOs are often in aprotective bubble and they fail to understand what their employeesare dealing with or the experiences of their customers.
Proponentsof the executive pay believe that the CEO compensation levels arejustified because most directors tend to have all their baskets in asingle basket. According to Bloxham (2011), CEOs are often limited tothe organization for which they work without the capacity todiversify their portfolio to other investment. Hence, the escalatedwages for the executive are used to encourage their loyalty. Mostcompanies believe that they have to pay CEOs above average to retainand attract top executives. Base salaries are the chief factor insupporting executive loyalty and morale. Research indicates that 80%of employees at companies with over 500 workers agree that wages areextremely essential to their loyalty to a firm (Fredrickson,Davis-Blake & Sanders, 2010). Thus, when CEOs are well paid theytend to focus on the long-term goals of the organization, which oftenoverrides their own short-term interests. As a result, they believethat the CEOs deserve their salaries because they are the people whoshoulder the biggest burden or responsibility when it comes tofailure of success of a corporation. The CEO usually makes thetoughest, bigger and strategic decisions that address the company’sinvestment direction. They are also higher wages because it is themarket price and companies have to meet this requirement, or risklosing their executive to companies that are willing to pay suchprices (Claassen & Ricci, 2015).
However,other factions argue that the CEO compensation is unfair because theyare often paid insane salaries even when the companies they areleading are failing. Even when such CEOs are getting fired the exitcompensations are also appalling. They explain that some CEOs arebeing rewarded at points that do not seem to commensurate with theircontribution to the organization, particularly in situations wherethey are running underperforming corporations. They add that sinceCEOs are not the owners of publicly owned organizations they do notneed to be paid so much of overseeing things as the board contributesin making major decisions (Davis & Edge, 2004).
Manypeople have raised concerns regarding the compensation of theexecutives in a company. Some believe that the pay is ridiculous andunjustified because of the difference between the managers andaverage employees. Others add that the CEO compensation does notmatch their performance and is unfair. Conversely, there areproponents who believe that since CEO are accountable for the companyand make most of the decisions, which affect the direction of thefirm, their salaries are warranted. However, in my view, the CEOcompensation needs to be amended to offer some form of connectednessto the average employees. Firms can accomplish this by giving theirCEOs reasonable wages based on their performance.
Bloxham,E. (2011). How can we address excessive CEO pay? Fortune.Retrieved fromhttp://fortune.com/2011/04/13/how-can-we-address-excessive-ceo-pay/
Bogle,J. C. (2008). Reflections on . AcademyOf Management Perspectives, 22(2),21-25.
Claassen,D., & Ricci, C. (2015). CEO compensation structure and corporatesocial performance. DieBetriebswirtschaft, 75(5),327-343.
Davis,M. L., & Edge, J. T. (2004). Executivecompensation.San Diego, CA: Windsor Professional Information.
Fredrickson,J. W., Davis-Blake, A., & Sanders, W. G. (2010). Sharing thewealth: social comparisons and pay dispersion in the CEO`s topteam. StrategicManagement Journal, 31(10),1031-1053.