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Executive Compensation in the US is out of control. Salaries for most CEOs are way too high in comparison to front line wage ear - Essay Example

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Topic: The compensation gap “Executive Compensation in the US is out of control. Salaries for most CEOs are way too high in comparison to front line wage earners in the same company.” Summary of the issue The difference of the pay between the top executives of the company and the employees that lie at the lowermost tier of the organization is becoming more and more discrete over the years…
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Executive Compensation in the US is out of control. Salaries for most CEOs are way too high in comparison to front line wage ear
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Download file to see previous pages Analysis and Evaluation of the issues Survey on the salaries of the CEOs have shown that the discrepancy in the salary have been growing very rapidly. During the 1980s the remuneration of the top executives was almost 42 times of that of the hourly workers’ pay. This had increased to 85 times by the next decade. With the inception of the new millennium the salary differential raised up to 531 times the salary of the junior most executive in the corporation. The Congress has passed a law in the post financial crisis period that made it mandatory for the CEOs and the top executives to disclose their salaries (Smith 1). The compensation that the CEOs were in different forms like salary, perks, bonus, pension accrued over the years and stock options. This compensation ratio of the CEO to the average workers varied across sector. It has been observed that the difference was greatest in the corporations that provided financial services, followed by the companies that produced consumer products. The ratio was comparatively less in the materials, technology and healthcare sector respectively. According to the eminent management thinker Peter Drucker, this ratio should range between 25:1 and 20:1. However the opinion that Drucker posited till as late as 2005, is not followed in the employment market in the United States or any of the multinational corporations that operate in different parts of the world. This kind of differences has led to a growth in the inequality in the distribution of income. While the growth of the wages of the top 1% of the executives have been 361 percent the wages of the employees that belong to the lower hierarchies have grown only by 34 percent over a period of almost three decades. This has a direct effect on the amount of revenue that the US government has collected from the top executives in form of taxes. As a result the income gap of the households has also increased (Mishel 4). Various issues relating to this have also come up in this regard. Only those households which had a top executive of a company as their family member had incomes that were extremely high. This was especially true for the executives who worked in the financial sector. Another surprising fact was that the rate is which the stock markets have grown over the years was less than that of the growth of the salaries of the CEOs. Research has shown that the stock options that the CEOs are offered account for this discrepancy in the wages. Warren Buffet is another supporter of this view. He insisted that the pay the top executives do not justify the work that they perform. He also feels that the CEOs have selfish intensions when they formulate policies in the organization rather than thinking about the benefit of the investors and the health of the company (Buffet 16). According to him a CEO can fulfill his selfish needs by paying fewer dividends to the shareholders and steering the retained funds into projects that may not turn out to be fruitful. Reactions I support the opinion expressed by the authors discussed above and the results of the various studied that have been conducted on this issue. The US financial crisis that had made a lot of families bankrupt was caused due to the extreme greed of the top executives. This greed had forced them to get into deals that were either very vulnerable or ...Download file to see next pagesRead More
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