Executive Reward Paper - Essay Example

There is a general trend that these executives are normally paid more in comparison to the other lower level employees. The pay of these executives is made by a base salary along with several other perks and short and long term incentives (Pepper, 2006). HISTORY AND CURRENT TRENDS OF EXECUTIVE REWARD IN UK: Starting from the late 1970s, the high pay commission has investigated that there had been a sustainable trend in income that leads to income inequality. Most of the wealthy elite are going to be rich and bankers and business leaders have been gaining a lot from this upward trend.

Starting in the early 1980s, it has been noticed that a huge shift occurred in which pay at the top level increased exponentially in comparison to the pay at the lower level. But still this pay level appears to be increasingly disconnected from the performance of the company. In FTSE 100 companies, an executive pay rose by 49% in 2010 (The High Pay Commission 2011a). This shows that there has been a huge increase in the pay of employees at the top managerial level of some of the biggest companies.

As a result of this injustice, top pay results in market failure. High levels of inequality in income have contributed to sectoral imbalances, regional disparities in investment and assets bubble inflation. Today, the association of British insurers recognises the significance of large pay awards and they have claimed that excessive or undeserved remuneration has an impact on the efficient operation of the company. There has been considerable amount of increase in the previous thirty years (The High Pay Commission 2011a).

AIMS OF EXECUTIVE REMUNERATION AND FACTORS LEADING TO EXCESSIVE REMUNERATION: Setting executive remuneration is one of the important and tough task for the organisation. the aims of the organisation behind the executive remuneration are to make sure that competent executives are attracted and retained. Apart from this it is important to motivate and encourage the top executives as the overall performance of the business is directly dependent on them. Another factor which should be considered while setting executive remuneration is that it should facilitate the organisation in the process of being cost effective (Hume, 1995).

Apart from all these aims and objectives of the organisation, there are several other factors and elements which directly affects the executive pay or remuneration. Some of these factors are: corporate governance, government regulations, interests of shareholders, labour market, value and culture of the organisation, employees, etc. Organisations have to balance all these factors along with the requirements and aims in order to come up with appropriate executive remuneration (Hume, 1995). Some of these factors have resulted in increasing the executive pay.

Four main causes behind the excessive executive remuneration are (The High Pay Commission 2011a): 1. The ongoing efforts to relate the salary with the performance. 2. The structure of the organisation is not able to check and control the payments and earnings at top level. Some of the committee members have their own interests associated with the level of the salary and remuneration. 3. Condition of the labour market also has direct impact on the excessive executive remuneration. Most of the organisatio