Executive Compensation Structure and Company Performance - Essay Example

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In order to counter negative external effects a firm may revolve to adjusting its policies in order to stabilize its operation. The article indicates a correlation between executive pay and overall company performance…

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Executive Compensation Structure and Company Performance

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Subject: Business
Type: Essay
Level: Undergraduate
Pages: 1 (250 words)
Downloads: 2
Author: javon18

Extract of sample "Executive Compensation Structure and Company Performance"

Stock Performance Verses Executive Pay al Affiliation Stock Performance Verses Executive Pay There exist factors that affect performance of the company. In order to counter negative external effects a firm may revolve to adjusting its policies in order to stabilize its operation. The article indicates a correlation between executive pay and overall company performance. The company stocks determine what the firm may pay its top most executive. Bonuses are offered to executives in an event the company performance is above its competitors.

A reduced pay may indicate external effects on company’s return on stocks. The article brings on the notion that the most paid CEOs are those whose firms have the highest returns on stocks. The Yum CEO’s pay drops to 10 million, which is a 22% decrease. This indicates how the overall revenue may be a determinant when calculating the total pay of executives. CEO is directly liable when a company underperform. Considering the model used to calculate the pay of the CEO, it is evident that a CEO is motivated to perform once a pay cut is registered on the overall salary package.

Each company formulates its payment model based on the stock performance however Giorgi and Chemi (2014)indicates the model being a myth as many companies shows that there is no correlation between the company stock performance to the payment packages. They attribute only 1% of highly paid CEO to be based on stock performances. In conclusion, the compensation policies vary depending on the firm’s priority. The article shows how stock performance determines the compensation package of a CEO.

The model works to ensure the company’s top chief works towards ensuring the overall performance of the company is stable and overcome external factors. ReferenceChemi, E., Giorgi, A. (2014, July 22). The Pay- for- Performance Myth. Business week. Retrieved from http://www.businessweek.com/articles/2014-07-22/for-ceos-correlation-between-pay-and-stock-performance-is-pretty-random.

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