The Difference in the Salary of CEOs in the United States and the United Kingdom - Essay Example

Running Head: US & UK CEOs US & UK CEOs [Institute’s US & UK CEOs The globalization has resulted in the evolution of business in international arena, and a number of organizations have succeeded with high profits; however, some have not been able to survive in this competitive world. In midst of tension, employees have been the major victims of this competition, as jobs have been cut off and unemployment rate has shoot up in last ten years in different parts of the world. On the other hand, the CEOs of most of the companies seem to have been enjoying this state of competition with their high remunerations. However, such swanky and high-class position has also been divided into two different categories, in terms of their geographical locations. In particular, it has been an observation that CEOs in the US companies are more likely to get high salaries, as compared with their UK counterparts. In this regard, this paper will study some of the cases of US & UK CEOs, their jobs and responsibilities and the way they have been paid off by the companies at the time of high profits, as well as, in the circumstances of huge losses. It seems to be quite ironic when a US CEO is paid many times higher than a CEO of the UK Company is. (Balsam, 2002) Although the CEOs in the UK are acquiring increased pay levels in the recent years, CEOs in the United States are still far in front of them, especially the US CEOs are found to be enjoying greater amount of profits from the company shares. If we look at the statistics, in the year 1999, five-hundred largest UK companies paid approximately £400 million to their CEOs, out of which, exercising share options provided £90 million to them. Contrastingly, 500 US companies paid around £3.6 billion to their CEOs during the same year, which is too much higher as compared with the UK CEOs. (Yaverbaum, 2004) One of the reasons that were identified during the study is that US market plays the role of a global market, and therefore, US companies get immense number of growing opportunities, as well as, they grow with faster speeds, which results in the higher pay levels of CEOs in the US companies. In the recent years, researchers and experts have pointed out that the CEOs in the United Kingdom earn 63% lesser cash compensation from their companies, as compared with the US CEOs. Moreover, 210% higher total compensation in terms of share options is earned by the US CEOs in comparison with the UK counterparts. US growing market can be the factor; however, the gap has an ironic difference, which cannot be caused by the market factor, as the United Kingdom possesses a huge market in terms of the global consumers. In this regard, studies have indicated that share options is one of the other major factors that have caused such a paradoxical gap between the US and UK CEOs. (Pollock, 1996) According to the statistical reports for the year 2001, it was indicated that 0.30% was the median stock holding of the CEOs in the US companies, which results in a greater part of their wages from the share options. On the other hand, it is observed that UK CEOs enjoy only 0.07% of medium stock holding in their companies, which is very much lesser than the US counterparts are. Once again, the gap is very surprising as structures of corporate governance and economy are very similar in both countries, and therefore, it is very astonishing that share option award provides holding with such difference to these counterparts. In this regard, some of the experts have deemed cultural and institutional differences, as one of the major and significant factors responsible for the higher levels of pay of US CEOs, as compared with the UK ones. (Holovacs, 2005) Historically, more tolerance of income inequality has been showed by the United States as a society, as compared with the United Kingdom. Therefore, it is observed that the United States encourages the option compensation, as compared with the United Kingdom that discourages such compensation. One of the reasons of this dissimilarity is the deductibility rules in the corporate tax law, which is quite different in both countries. Ultimately, most of the experts and economists have considered restrained political, as well as, cultural differences as the major factors of the pay difference in these countries. (Yaverbaum, 2004) In the United States, it is observed that executive pay and performance has confronted tighter links between each other due to controversy related to the CEO salaries, which has resulted in the exacerbation of the wages inequality. On the other hand, large share option awards have been discouraged in the United Kingdom due to the statutory policies that were introduced due to the similar CEO controversy in the country. In the result, CEOs in the United Kingdom confront a compressed structure of remuneration due to reduction of the pay performance. (Barmash, 2004) Another major controversy related to this topic is that most of the experts have criticized that US CEOs are overpaid, when they are compared with their company performances. For instance, during the last four years, $41.2 million was the total compensation of a CEO in one of the largest American companies in the United States. Interestingly, the past four years have resulted in the ninety-three percent loss in the shareholders of this company. In this situation, it was ridiculously funny to pay such a high amount to its CEO. In this regard, it has been indicated by the experts that one of the other significant factors of such a gap between the salaries of US and UK CEOs is the overpaying nature of the US companies’ owners, which has been criticized heavily throughout the country. (Balsam, 2002) Similarly, another US CEO took away more than twenty-six million dollars in the same span, and the company confronted loss of more than seventy-five percent in its shares, which is another significant example of overpaying nature of owners of the US companies. A number of examples are available for the public in which, the CEOs have taken away unimaginable amount of compensation, even in the midst of losses. (Barmash, 2004) According to many business critics, such amount of money should not be given to the CEOs, and in return, it should be spent on the provision of bonuses to the deserving employees and workers in the companies, which will motivate these employees, and in turn, result in the quality service of the employees. In this regard, another major factor of such a gap is that employees in the US companies are not paid as much as employees in the UK companies. In other words, employees in the UK companies acquire a little higher pay level, as compared with US workers. (Holovacs, 2005) It is very difficult to consider a single factor responsible for the higher levels of remuneration of CEOs in the United States in comparison with their counterparts in the United Kingdom, and therefore, various factors are responsible for such an ironic gap between them. It has been discussed in the paper that structures of corporate governance are very much similar in both countries, and therefore, they cannot be held responsible for such a gap. It is an observation that cultural difference is one of the most significant factors that have led the US CEOs to earn two times and even four times higher pay rolls than their UK counterparts. Conclusively, it is hoped that this paper will be beneficial for the students, teachers, experts, and nonprofessionals in better understanding of the topic. References Eric Yaverbaum. (2004). Leadership Secrets of the World’s Most Successful CEOs. Dearborn Trade Publishing. Isadore Barmash. (2004). the Chief Executives. Beard Books. Steven Balsam. (2002). an Introduction to Executive Compensation. Academic Press. Tim Pollock. (1996). Overpaid CEOs and Underpaid Managers. Stanford University Press. Wayne Holovacs. (2005). American CEOs Can Do Better We Have the Technology? iUniverse. 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