CEO remuneration and a firm performance - Dissertation Example

Download file to see previous pages... Typically, it is a combination of salary, incentives, and shares of and call options on the stock of a company, ideally configured to consider the government rules and regulations; a company’s goals/strategy and its executive’s desires, tax law and recognitions for the performance. Executive compensation is viewed through the observable outcomes. It should be designed to give appropriate and befitting incentives. Many shareholders do not want or expect executives to take risk with an aim of getting large profit; in fact nowadays there is a significant emphasis on risk control and strengthening of audit committees to ensure that any risks are understood, assessed and managed properly. The financial collapse in 2007 has changed shareholders’ perception in the light of many ‘reckless’ actions taken by executives, particularly in the financial services sector. That is why the compensation of chief executive officers has increasingly been receiving a lot of attention. As basic salaries are not viewed as an adequate method of influencing the performance of the top executives, the other, different types of rewards were brought in. It is feared that top executives, driven by high profits, were/are acting in their own and not a company’s shareholders’ interests thus encouraging the separation of control and ownership in modern companies. That is why Remuneration Committees have now changed inventive plans to ensure that they do not reward short term behaviour or aggressive ‘risk taking’. The executive remuneration or compensation landscape has greatly and rapidly changed during recent years with executive pay remaining a focus point for the UK Government as well as European Commission, shareholders, and media. Draft new rules and regulations will give shareholders new powers to vote down pay arrangements and alter the way organizations will report on the remuneration of directors, which will considerably alter the environment of executive remuneration. Taking into account the changes in the attitude to the remuneration brought about by the last recession and current tightening legislation, the aim of his research paper is to analyse the correlation between Executive Remuneration and a firm performance. 1.2Aims and objectives 1.2.1Aims of the Study To identify and discuss contemporary issues in Executive Remuneration topic; To determine the impact of Executive Remuneration on a firm’s performance To access executive remuneration and its impact on a firm’s evaluation To establish the correlation between Executive Remuneration and firm’s performance. 1.2.2. Objectives of the Study To evaluate the arguments in Executive Remuneration To evaluate the impact of the Executive Remuneration on a firm’s performance using the following proxies: - Return on Assets - Return on Equity -Dividends Yields Share price. To verify the type of correlation between Executive Remuneration and firm’s performance. 1.3. Main research questions The main purpose of this research is to determine the correlation and the impact, if any, of Executive Remuneration on a firm performance; hence this work is aiming to answer the following questions: What are the determinants of Executive Remuneration? 1.3.1 Objective 1- the determinants for executive ...Download file to see next pagesRead More