A Justifiable Way of Chief Executive Officers Rewarding - Dissertation Example

Executive pay or chief executive officer (CEO) has come under heavy scrutiny particularly following the economic recession and financial turbulence. Demand for restricting or regulating CEO pay or the issue of “fat cats” (Lin, Kuo, and Wang, 2013) comes in times of economic crisis (Dittman, Maug, and Zhang, 2011). Blinder (2009) refers to the incentives built into the compensation plans of many financial firms as “perverse” and attributes the financial crises to these “perverse” incentives (cited in Lin, Kuo, and Wang, 2012). CEO pay has received enormous attention not just from academics but also from the press (Gao, Harford, and Li, 2012). Every other day media reports of the excessively generous pay packages although there are diverse opinions over the pay packages granted to the executives. These arguments suggest that there is little correlation between economic conditions and executive pay.

CEO pay was subject to greater transparency after the numerous corporate scandals in the US in early 2000 (Bulan, Sanyal, and Yan, 2010). Many countries have introduced new legislation, regulated executive pay disclosure, and introduced corporate governance codes in line with best practices but debates have only intensified in the last few years (Otten, 2008). Whether they are doing a good job or not, Walsh (2008) firmly believes that CEO pay has come under sophisticated and withering attack. Walsh however cites Professor Kaplan as saying that the CEO job is becoming “increasingly difficult and less pleasant” thereby justifying the high pay. They now have to accept higher risks and responsibilities for which they need to be compensated, is the argument. However, increased scrutiny and disclosure requirements suggest that CEO pay has caught the attention of the shareholders and the media (HR Focus, 2007). These arguments demonstrate a weak corporate governance structure as the board has been unable to monitor the overall management.

Some find a link between CEO pay to past and future performance (Banker, Darrough, Huang, and Plehn-Dujowich, 2013) others find the link between performance and CEO pay weak and inconsistent (Chan, 2008).