Specifics of Anglo Governance System - Essay Example

Anglo governance system In the Anglo governance system, executive remuneration has increased markedly over the past decades. Has this also been evident in other governance systems? Compare and contrast across the governance systems. Illustrate with examples from at least 2 governance systems. Introduction There have been major changes in terms of remuneration especially in respect to the Anglo governance system. The Anglo governance is incentive driven kind of governance where more focus is normally towards the increase in the compensation. In most cases, the high performance frequently results in the increase in compensation by the firm involved, and this helps in laying the foundation needed for the future success of a given institution. In most cases, the performance of a given organization dictates the type of the remuneration in place. However, it is important to motivate the executives of a given company to ensure that they can maintain high performances in the company. Over the years, firms across the globe have tried to balance between the trends in the company revenues and the rate remuneration between the employees and the top executives. There is a direct relationship between the company performances in the market as well as its expansion in the global market is related to the type and the remuneration that they receive in the long run. On the other hand, the poor performance of the company in the Anglo-American culture directly leads to the decrease in remunerations packages given that the number of benefits falls drastically. Company executives are remunerated highly when compared with the other human resources especially junior employees due to the roles they occupy in the organization (Chien, and Wen, 2013). Even though the Japanese governance system has similar remuneration system in place, it is mainly stock driven where employees often acquire stock options as the compensation packages, and this is significant since it helps them in retaining the ownership of the company. Nevertheless, even though the stock options is highly utilized in Japan, it is implemented differently where they have been able to incorporate both the cash and stock options as the main remuneration techniques. The continental Europe uses a different kind of compensation especially given that the shareholders have the higher control on the operations of their company. In most cases, the corporations are either owned by the government or even by wealthy families who make it easier to monitor the activities of the management (Munari, Oriani, and Sobrero, 2010). This frequently emanates from the fact that most of the operations are structured to meet the needs of block holding shareholders. However, the enumerations across Europe differs from one company to another depending on the ownership and the performance of the companies in the market. Even though there are disproportions in terms of remunerations in different types of governance, there are measures in place to ensure that the executives can perform as per the required standards. In most cases, the performance of the executives is measured depending on their corporation's performance in the market and the increase in revenues. Some countries in Europe such as Germany frequently rely on the continental type of governing systems where the relationships between the shareholders and the company management. This is slightly different from another type of governance such as the Anglo governance system since the shareholders are in most cases involved in the decision making process in regards to how the operations of the company are run. However, in these type of companies, the families or individuals are normally the largest shareholders in the company which creates a need to control the operations of the company to safeguard their interests. On the other hand, in this case, the executives are still remunerated depending on the performance of the enterprise. However, the continental governance system is regularly practiced by the private companies given that in listed companies individuals have less control in the management of the enterprise (Enriques, and Volpin, 2007). The decisions are frequently made depending on the voting rights that the individual shareholders hold. Recommendations Different methods of governance can achieve different results depending on the measures in place. The relationship between the shareholders and the company management is guided by the agency theory. Company executives act as the as the shareholder's agents in the administration of the enterprise resources. However, the method of remuneration adopted by the corporation should be governed by the company short term and long term goals, along with the performance of the enterprise. Nonetheless, various parameters and the risks associated with the company progress in the market given that remunerations, in the long run, may not be sustainable if the proper analysis is not carried out. However, corporations often face a major challenge in trying to balance the needs of the executives as well as the shareholder's interests (Li, and Wang, 2016). It is important to ensure that the employees are properly motivated to equip them with the ability to handle various talks. Lack of proper motivation affects the performance of the executives which makes remuneration an important of the extrinsic motivation. A company can, however, choose the type of remunerations to be used given that there are different options that can help in ascertaining that the motivation of the executives is at high levels. Though, the type of compensation depends on the composition of the companies. For instance, where the company is dominated by few shareholders there is a tendency of the shareholder's involvement in the decision-making process. However, this limits the powers of the executives in the company given that most decisions must be approved by the shareholders of the company especially where they retain the voting rights (Hong, Li, and Minor, 2016). However, the company management should not be allowed to make decisions of their remunerations given that this move may lead to the conflict of interests. Therefore, shareholders should retain the decision-making process on how the remuneration is done to ensure that the management is held accountable for their actions (Demirer, and Yuan, 2013). At times, the stock's options may help in ensuring that employees have a sense of ownership especially on how different operations are carried out and this may go a long way towards improving their decision-making process. Conclusion Governance is essential in any organization, and the performance of the company executives determines the success of a company in the market. However, one of the primary challenge that the companies have faced in the past is trying to establish the right balance between the remuneration of the executives and the performances of the company. Executives are usually paid an average of 30 times the normal employees especially due to the roles they play ion the managing the company resources as well as other operations (Baglioni, and Colombo, 2009). However, the remuneration differs between the private and public companies given that they are often governed by different policies. Furthermore, there are often policies in place that dictate the compensation of the employees. In various governance systems, the rate of compensation among the top executives increases depending on the overall performances of the company. In the Anglo-American model, the growth in the rate of remuneration coincides with the performance of the company. However, transparency is important in most cases where the shareholders are often actively involved in the decision-making process especially emanating decision-making process. However, both the Japanese and the continental models have issues relating to the transparency and the powers that the shareholders have in the decision-making process. For instance, the continental model may disadvantage some shareholders given that some have powers since the majority shareholders have the power to make the decisions even without consulting the minority shareholders in the company. On the other hand, the cash remuneration while utilizing the Japanese model is different given that the model normally concentrates on the long term growth instead of focusing on the short run profitability. For that reason, the remuneration of the executives in the Japanese governance model allows for the use of the stock option as a method of remuneration. This helps in making the executives as the shareholders of the company, and through this, they can balance their interests with that of shareholders. It is of great importance to ensure that the executives and the shareholder's interests are well protected. The American governance system requires all the shareholders to be involved in the decisions making process in regards to the executive's remunerations. This helps in establishing the right balance between the needs of the shareholders as well as those of the executives who have the responsibilities of managing the operations of the companies. Through this, it helps in making sure that the agency relationship shared between the company executive and the shareholders are maintained. Besides, it helps in the separation of powers which makes the decision-making the process easier and at the same time promote accountability. However, there is the possibility that a firm may incorporate various remuneration packages while ensuring that the interests of the shareholders and those of the company executives are balanced. Even though the continental, Japanese and the Anglo governance system are slightly different, the main focus is often directed towards achieving both the short term and long term goals of the company. Even through the continental model does not primarily use the stock options as the main remuneration package, it is normally set aside to ensure that they have proper motivation and give the executives a sense of ownership. When employees develop a sense of ownership, they can make decisions that are directed towards safeguarding the future interests of the company a model that has successfully been implemented in Japan. Listed companies in the United States relies on the decisions made by the shareholders in regards to the remuneration given that they retain the voting rights and the supervisory roles to the company management. However, the decision made should be able to protect their interests and at the same time guarantee that there is proper motivation within the company. It is important to ensure that there is adequate separation of powers in particular between the management and the shareholders to ensure that the supervisory roles are adequately used. References Baglioni, A. and Colombo, L., 2009. Managers'compensation And Misreporting: A Costly State Verification Approach. Economic inquiry, 47(2), pp.278-289. Chien, M.C. and Wen, M.M., 2013. Stock-Option-Based Executive Compensation Plans And Lodging Firms'risk-Taking. An International Multidisciplinary Journal of Tourism, 8(3), pp.1-20. Demirer, I. and Yuan, J.J., 2013. Executive compensation structure and firm performance in the US restaurant industry: An agency theory approach. Journal of Foodservice Business Research, 16(5), pp.421-438. Enriques, L. and Volpin, P., 2007. Corporate governance reforms in continental Europe. The Journal of Economic Perspectives, 21(1), pp.117-140. Hong, B., Li, Z. and Minor, D., 2016. Corporate governance and executive compensation for corporate social responsibility. Journal of Business Ethics, 136(1), pp.199-213. Li, Z. and Wang, L., 2016. Executive compensation incentives contingent on long-term accounting performance. Review of Financial Studies, 29(6), pp.1586-1633. Munari, F., Oriani, R. and Sobrero, M., 2010. The effects of owner identity and external governance systems on R&D investments: A study of Western European firms. Research Policy, 39(8), pp.1093-1104. Read More