Corporate Governance - Essay Example

Corporate Governance Name Institution Date Table of Contents Table of Contents 2 1.0 Introduction 3 2.0 Discussion 4 2.1 Outline and summary of the arguments made 4 2.3 Why are these arguments being made in the media? 6 2.4 Conclude by providing your opinion about the issues raised in the article 7 3.0 Conclusion 8 References 10 1.0 Introduction The compensation of executives is an area that has received wide attention over the years and the issue features in headlines, television news shows and also as cover stories. This wide attention can be attributed is attributed to a number of factors with the first one being the undisputed escalation of the executive compensation since the figures seems to have doubled since the 1970’s. The second factors is the populist attack of wealth amassed following the “excesses of the 1980’s” with the main argument being that the high salaries of executives are leading to plant closures, layoffs as well as to corporate downsizing (Murphy 1995, 1997). The third aspect is the bull market which took place in the 1990s, it created windfalls and the executive salaries increased based on the stock price permanence. This paper therefore sets out to choose a newspaper of a trade journal article related to corporate governance and the journal that has been selected is “McFarlane, D 2015, Gaps in Executive and Worker Compensation as an Organisational and Management Challenge, Journal of Entrepreneurship and Business Innovation, vol 2, no 1. This will be followed by an outline and summary of the arguments made, the issues raised in relation to corporate governance, a discussion of why are these arguments being made in the media and my personal opinions about the issues raised in the article and a conclusion. 2.0 Discussion 2.1 Outline and summary of the arguments made A major argument made by the author is that excessive compensation for the executive is a major organizational problem that exists in the modern day businesses and it in a way affects the perceptions of fairness by a number of stakeholders for instance the workers who feel that their contribution to the success and performance of the organization is not rewarded adequately, but instead their toil is transferred to the organizations CEO’S and to other executives as the companies increased their profits and revenues as a result of the toil and sweat of the ordinary workers in the organization. Another argument made is that the compensation of the executives need and should always be linked to the performance and results of the organization (He 2008). Based on these an executive whose company seems to be making loses need to earn less as compared to the executives whose organizations seems to be making profits. The author further states that this would make sense since the excess salary received by the executive while compared to other members and workers in an organization should be accounted for and the most suitable way to ensure accountability is in the executives contributions to the revenues and earnings of the company based on the profits made. Another argument made is that organizations should always strive to ensure that there is fairness in the compensation of the workers and the executives and take note of the notion of excessive compensation since it affects the perceived fairness when viewed from the perspectives of other stakeholders such as clients or customers, administrative agencies, community, government and workers. The author states that this notion contributes to the cropping up of a bad organizational reputation and image since the community views the organization as being driven by greed and that they value their executives or CEO more than their ordinary workers. Another argument is that companies should ask themselves questions such as the standards that should be in place to determine a fair wage of all employees, if the standards applied for executives are in any way different to the standards used in working out the employee compensation as well as the factors that should be considered when determining an employees pay (Nichols & Subramaniam 2001). 2.2 Discuss in the context of your readings, the issues raised in relation to corporate governance A major issue that has been raised in relation to corporate governance relates to the determination of the executive compensation. Based on these it is argued that the boards of firms come up with managerial incentives that are consistent with the incentives of the owners of firm and they do so by setting compensation and at the same time following management change policies for the benefit of the shareholders (Grabke-Rundell & Gomez-Mejia 2002). Therefore in this regard, the board members play vital and a key role in the control mechanism of setting the compensation of the CEO. This shows that the compensation of executives in most instances is a decision that is determined internally since the board of director’s influences the composition and the level of compensation paid to the company’s executives (Sapp, 2008). Another issue raised in relation to corporate governance is the building of companies trust. Based on this issue, companies which seem to be paying their CEOs and executive highly are viewed with a lot of skepticism by the general public and the employees. The companies can address this issue by giving fair salaried to employees as compared to their CEOs. But this does not advocate for the CEOs and the executives to be paid equal salaries with the employees but their pay should be realistic. Another issue that is slightly discussed in the article and it relates to social responsibility (Gordon 2004). Based on these, it would be essential for companies to increase the rewards in an integrated and commendable manner and this can be viewed as being part of social responsibility actions to the communities within which the company operates in. in relation to these, it would be effective for companies to engage in social responsibility activities and this will in a way change the view of the community about the company and this will eventually work to the company’s advantage. 2.3 Why are these arguments being made in the media? A major reason as to why such arguments are been made in the media is to make people aware of the issues that faces organizations and that effects them do indirectly. For instance, in regard to these, employees will be made aware of the fact that their executives are paid highly despite the employees efforts to make the organization a success. Thus, in future they will advocate for a better pay and a decrease in the gap between their pay and that of their executives. The use of this media will also allow people to advocate for better terms in future and eradicate the issue of executive compensation being a management challenge in their future organizations. In regard to these, when people are selected to sit in the board of companies they are likely to address the issues due to the outcry from the workers and the public (Harris 2009). Such articles are made in this kind of media to allow the public to know how much their executives take home. The executive compensation seems to be a fascinating issue since the public is usually surprised when the issue seems to be the focus of debates and news. A great number of people including the general public and the employees are not aware of compensation offered to the executives and the CEOs until these issues are published in the media such as this one. It is then that the average worker realizes that he or she of poorly compensated and the rewards that he should be given for the additional contribution they give to the organization but this usually ends up in the pockets of the CEOs and executives. For instance, based on the research carried out on various companies such as McDonald and Starbucks it was found out that the CEO at McDonald is pay 1196 times when compared to the average worker in the restaurant while a CEO in Starbucks is paid 1096 times when compared to the pay of the average worker on the company (Peterson 2013). Thus, this kind of media offers adequate and reliable information to the employees and the general public. 2.4 Conclude by providing your opinion about the issues raised in the article My personal opinion is that continuous and increased attention needs to be channeled to the management and corporate challenge facing a number of organizations all over the globe. I tend to believe that a great number of executives are being paid unrealistic pays at the expense of the other employees and mostly the ones in the lower levels yet they are the ones who do most of the work. Though a great number of executives seems to be extraordinary leaders and they manage their companies in the most effective and efficient manner with the aim of creating more revenue and increasing their profits, the gap between the employees pay and that of the executives should be reduced considerably to ensure that the employees feel as essential parts of the organization due to the compensation for their duties and roles they are undertaking in the company (Nichols & Subramaniam 2001). As a matter of fact the excessive salaries given to the executives could be used to reward the employees, create better working environment, offer continuous training, make available more opportunities for promotion and advancements and increase benefits of employees. I am also of the opinion that though the CEO may be the one making the strategies to ensure increased revenues and profits, without the collaboration of the employees the strategies are bound to fail. So this should always be considered in pay rises and thus incase of increased revenues and profits for a company the employees should also benefit from it. I also believe that companies need consider the implications of the high salary gap between the CEO and the average worker and mostly in terms of loyalty, employee satisfaction, motivations as well as the perceptions of the company from the public and employees perspectives (Wright & Cropanzano 2000). I would also propose the use of similar standards in the determination of a fair compensation and wage for both the CEOs or executives and the general workers since currently there is the application of different standards when it comes to general workers compensation and CEO or executive members compensation (Gordon 2004). Some of the standards that should be used relates to the job and management responsibility of an individual, level of responsibility and accountability, education and experience, conceptual, technical and interpersonal skills that the job functions calls for and risks in completing the tasks, sacrifices made by the workers be it the CEO or general workers such as their travel and other related expenses, an individual’s level of expertise in their job function, value added contribution made by either by the employee or the CEO in enhancing the success or productivity of the organization and lastly the labor and market demands related to ones field of expertise (Grossman & Hoskisson 1998). 3.0 Conclusion Based on the discussion above, it is clearly evident that a great number of people are concerned about the high compensation that is received by CEO of companies all over the globe while their employees receive lower salaries that makes it difficult for them to meet their daily expenses. This issues is further complicated by the review of information on the salaries of top CEOs from McDonald and Starbucks who actually receives salaried exceeding those of the average worker by 1196 and 1096 times respectively. Despite the fact that organizations are making efforts aimed at increasing the rewards of the employees what employees values most is getting fair and adequate pay for the amount of work they undertake in the organization. This issue becomes more critical; when employees become responsive to the excessive compensation of executives and CEOs. In conclusion, organizations should be petitioned to reduce their CEOs and executives salaries and pay their employees fairly when compared to the CEOs and executives. The CEOs also need to compassionate in the manner in which they manage and lead their members and they have to acknowledge and offer their workers with adequate and proper compensation to sustain and improve their living standards. This will eventually make the employees more loyal and contribute adversely to the enhancement and increase of revenue and profits in the organization. References Gordon, J 2004, ‘Executive compensation: If there’s a problem, what’s the remedy-the case for compensation discussion and analysis?’, Journal of Corporate Law, vol. 30, pp. 675-702. Grabke-Rundell, A & Gomez-Mejia, L 2002, ‘Power as a determinant of executive compensation’, Human Resource Management Review, vol. 12, no. 1, pp. 3-23. Grossman, W & Hoskisson, R 1998, ‘CEO pay at the crossroads of Wall Street and Main: Toward the strategic design of executive compensation’, The Academy of Management Executive, vol. 12, no. 1, pp. 43-57. Harris, J 2009, ‘What’s wrong with executive compensation?’, Journal of Business Ethics, vol. 85, no. 1, pp. 147-156. He, L 2008, ‘Do founders matter? A study of executive compensation, governance structure and firm performance’, Journal of Business Venturing, vol. 23, no. 3, pp. 257-279. Murphy, K 1995, ‘Politics, Economics, and Executive Compensation’, University of Cincinnati Law Review, vol. 63, no. 2. Murphy, K 1997, ‘Executive Compensation and the Modern Industrial Revolution’, International Journal of Industrial Organization, vol. 15, no. 4, pp. 417-426. Nichols, D & Subramaniam, C 2001, ‘Executive compensation: Excessive or equitable?’, Journal of Business Ethics, vol. 29, no. 4, pp. 339-351. Peterson, H 2013, ‘McDonald'’ and Starbucks’ CEOs Make More Than $9,200 an Hour’, Business Insider, December 10, 2013. Viewed 11 March 2016, http://finance.yahoo.com/news/mcdonalds-starbucks-ceos-more-9-110100507.html Sapp, S 2008, ‘The impact of corporate governance on executive compensation’, European Financial Management, vol. 14, no. 4, pp. 710-746. Wright, T & Cropanzano, R 2000, ‘Psychological well-being and job satisfaction as predictors of job performance’, Journal of Occupational Health Psychology, Vol. 5, no. 1. Read More