Executive Compensation - Coursework Example

Download file to see previous pages There is ongoing public indignation over the idea that there are executives who are rewarded handsomely in firms that are experiencing financial losses, facilities closure and employee dislocations in the form of cuts in pay and benefits and forced terminations.
At a time when the public is looking for someone or something to blame, is it correct to cap the current executive compensation in the US? This paper will explore this possibility and its impact on American capitalism, whether such a move would be beneficial or harmful to the economy.
In the United States, the capitalistic system rewards high risks with high rewards and that executive are paid astronomical amounts for their skills and capabilities. The executive compensation in the US consists of the total rewards received by the top-level executives of a corporation. These high-ranking officers include the chief executive officer (CEO), the chief operations officer (COO), the chief financial officer (CFO), as well as the other executives who hold the highest level of management in a firm. The total rewards, meanwhile, is generally consisted of salaries, bonuses, incentive payments, deferred compensation plans, stock options, and the direct provision of goods and services. The stock option for executives could surpass the worth the direct cash payments such as salaries and bonuses. Additional perks may include packages that consist of housing, personal staff, transportation, and other personal expenses of the top executives, which are normally shouldered by employees. According to Alan Greenspan (2007), the former chairman of the US Federal reserve:
A [US] CEO’s compensation has, on average, been tied closely to the market value of his or her firm… CEO compensation at such large US corporations reportedly rose by 10 percent annually between 1993 and 2006, triple the 3.1 percent annual increase of earnings of private-company production or nonsupervisory workers. (p.426)
Several studies have examined the absolute magnitude of compensation internationally and they found that the top executives of US-based companies receive a significantly higher level of absolute compensation (i.e., the actual dollar-worth of the entire pay package) than similarly placed executives in non-US firms. (Kolb, p.2) Needless to say, critics focus on this aspect to argue against the current system and advocate a cap on executive pay packages as a way to ensure more profit and a balanced ratio between their pay and those rank and file employees. From here, it is easy to understand that criticism against the American executive compensation system stems mainly from the social dimensions of the issue – that it is unethical for corporate executives to amass a large amount of money when the average employee receives less. So far, there is no empirical evidence that links the executive pay as the reason behind the financial losses of American business organizations. ...Download file to see next pagesRead More