Salary is one measure of executive compensation, however other variables are involved. These include bonuses for achieving given targets as set by the board of directors, stock options, a send-off package should the individual be terminated and expense accounts for the executives. These compensations are usually high and outrageous when compared to other employees. This high compensation sparks controversy.
Reports of high compensation packages of executives are usually met with outrage by groups, who view this income inequality issue as one of society’s ailment. A wide gap and margin between top executives and ordinary are said to increase income inequality. A report by Bloomberg Business Week, the average executive of a major company made 42 times the average hourly workers paid in 1980. This has perpetually increased over the years, and in 2000, an average CEO salary reached an unbelievable 531 times that of the average hourly worker.
During periods of poor performance and layoffs across an organization, this high compensation for executives is a source of conflict. Workers who are laid off and others who are affected view top executive compensations as evil, offensive and outrageously ridiculous. Those affected blame their unemployment to executives who earn a lot and are just a single individual.
It also sparks controversy when executives of a company are receiving high compensations, and shareholders receive low dividends. When the shares of a company are falling and losing their value, this is when companies are performing poorlyHigh compensation causes bitter resentment among shareholders and the board.
An article by the New York Times on July 14, 2016says that executives pay is an expense, and excessive pay means that shareholders are losing money. This is when a company issues shares under an executive pay agreement. These additional shares cause a decline in the value of existing shares. What is more controversial is that a company buys back its shares when the stock prices are high. This shows that large sums of money are used to funnel money back to executives. Buybacks according to a study by Wintergreen Advisers, a money management firm, are a way of reducing results of excessive shares which were awarded to top executives during pay agreements. This shows that they are not meant for benefiting shareholders but the senior executives only.
Employees want an environment that offers rewarding work, security, and ability to advance and grow themselves in their careers. Although the high compensations spark controversy, executives give their most of their day to day activities on work-related issues. This leaves them with barely any time on personal or family life. Their lives reflect the company. They are the image of the company. Slight misconduct will cause ripple effects on a company’s stocks and the performance of the company.
Executive compensation is becoming increasingly expensive. Many companies consider performance while designing their compensation. These compensations seek to attract qualified and efficient executives. As companies strive to get the right executives for their companies, they offer compensation rewards that relate to specific measured performance. Despite the high compensation companies should seek ways to diminish the salary gap between top executives and other employees. Also, companies should ensure high performance to ensure shareholders even don’t complain about the massive compensation in terms of bonuses by executives.
BassB. Advantages of managerial compensation of a fixed salary. Retrieved fromhttps://smallbusiness.chron.com/advantages-managerial-compensation-fixed-salary-22503.html
Accessed on 17 March 2019
Karabell. Executive compensation is out of control. What now? Retrieved fromhttps://www.forbes.com
The Editorial Board. How excessive executive pay hurts shareholders, July 14, 2016
Retrieved from https://www.nytimes.com/2016/07/14/opinion/how-excessive-executive-pay-hurts-shareholders.html