Is CEO Compensation Justified by Performance - Research Paper Example

Since they are getting a well paying compensation, they do not have any other businesses or money generating activities. Having other income generating activities will affect their concentration on the firm. This could ruin the firm’s performance as they are concentrating on other businesses. However, when all their attention is attracted to the firm that is offering perfect compensation, they are likely to reflect the best performance. In such a situation, the firm is likely to flourish in recording the best performance.

CEOs that have a well paying compensation scheme depict the aspect of creativity and critical thinking. Creativity is vital in ensuring a firm is on the best track to give stunning performance. Creativity includes slotting better avenues of conducting businesses with clients and other businesses. In such a situation, the businesses are best prepared to record positive performance in the market. Similarly, creativity in a firm ensures all the activities are done at the right time and at the right place.

For instance, creativity ensures the institution effects all the plans at the right time. This includes market inception plans for some products and services. Without such creativity, the firm is likely to record dwindling performance (Joshi, 2). . However, lowly rated CEOs do not enhance the critical thinking aspect as they do not have the sole interest. Apparently, firms that remunerate their CEOs with high compensation are well prepared to tackle any setbacks in the market due to critical thinking aspect.

The performance of a firm depends on employee and CEO morale. Employees and CEOs that have high morale are likely to record positive performance in the market. However, employees and CEOs that do not have morale in the business are likely to wilt the business. Apparently, CEOs that have a high compensation rate have morale to record better performance with each passing financial calendar. Since they have a better compensation, they have nothing to lose when the firm is on the verge of making an even better improvement.

In many instances, the CEOs will be committed to making a better performance since they are given better compensation (Schwartz 1). In such instances, the CEOs will go to greater heights of ensuring the morale of their employees is boosted. When the morale of workers is enhanced, it is almost certain that the firm will make an improvement with time. However, when the CEOs do not have the best preparation in enhancing their own morale, the workers’ morale will also be low. As such, they both will not have any commitment in making a better accrual in the firm.

CEOs with high compensation rate have a future in the firm. The futuristic aspect is mostly enhanced by the better compensation in comparison to other CEOs. Such CEOs will be futuristic and will give all it takes to make an improvement in the firm. For instance, when the CEOs have better compensation, they are likely to make long term commitments to the firm. Given that they want to protect