Executive Compensation in the United States - Essay Example

CEO US and other countries—comparison Although it is true that executive compensation in the U.S. is ten or more times the pay of CEOs in other industrial countries, there is also an increasing tendency in other advanced industrialized nations to increase executive pay, although on a lesser scale. To this extent, there are many similarities between the American system and other systems overseas, particularly in Europe. Therefore, although out-of-hand executive pay may be less of a problem in other countries, it is a growing problem, to which there are various proposed solutions. “The highest levels of total direct compensation in Europe--including total cash plus long-term incentives--were found in France and Germany. U.S. base salary levels are close to European wages” (Bates, 2004). Incentives tend to differ in terms of performance and pay, and there is also the issue of different cultural values towards work and reward in different countries. But compared to most other countries, executive pay and bonuses in the US tend to be much higher on average, showing inequity in the system. When operating in international ventures, firms need to know relative levels of executive and CEO pay. “The riskier nature of international operations and the boards consequent need to increase CEO incentives (i.e., CEO pay) to reduce agency costs suggests a positive link between a CEOs international responsibilities and CEO compensation” (Gelinas, 2007). The problem of excess executive pay, so well demonstrated in the US, is even visible in the communist country of China, where state-run enterprises dominate the marketplace. However, although increases in pay may be on the rise in China, “Raymond So Wai-man, an associate dean of the business administration faculty at the Chinese University of Hong Kong, said the pay packets of many senior executives at state-owned enterprises remained low compared with their counterparts in Hong Kong and overseas.” (Beijing, 2007). There are also international factors to consider from a tax and incentive perspective, to perhaps justify increased wages for executives. “Tax effectiveness has often been a major influence, especially in high-tax countries where some forms of remuneration--commonly pensions and share options--have been highly tax favorable” (Bates, 2004). But in all too many cases, in Europe, Canada, and Asia, as well as in the US, corporate pay has become too complicated, focused on short-term rewards rather than long-term planning, and excessive. While opponents say it is too much, proponents assert CEOs are worth the high salary because of their contributions to shareholder wealth. The problem of lack of public trust in CEO compensation, however, is not just a specific issue to the international business environment, but affects the environment of shared morality and business ethics as well. In terms of domestic media, public opinion of business leadership has changed after several significant and recent scandals, many of which affected international companies that were in the process of establishing themselves, or were already established. Personal position and ethics Coming from my personal perspective on such issues as honesty and ethics, I do not think of business executives as being ethical and honest people. When someone mentions the term business executive, in other words, these are not the first words that spring to mind. If someone asked me to rate business executives as having good, moderate, or poor levels of honesty, I would probably choose poor. When someone mentions a real estate agent or a used car salesman, I think of certain stereotypes of dishonesty. Although my opinion of executives puts them slightly above these last two categories, I still think of them as dishonest, and I think that this is something that I share with a lot of the public. Public opinion is often seen as very important in a domestic sense in terms of the formation of aggressive domestic corporate decision-makers that are centered on ethical concerns such as accountability. Another concern I have regarding the issue of executive pay is that this compensation tends to be growing or increasing. Even conservatives admit that these salaries have not been remaining steady or decreasing with market pressure, but instead have been on the upswing. At the same time, other professions are actually suffering a downswing, such as pay scale levels for workers. Workers laid off, not CEOs, and I feel that this is unfair. Some of the issues associated with the issue of CEO compensation include corporate ethics and accountability, and others include general disclosure, but in any case, from my perspective, the importance of financial controls is a baseline from which interpretation stems. In the current cultural and economic setting of the corporation internally, finances are becoming increasingly related to issues of transparency and internal stabilization, from perspectives of both auditing and shared vision. “Public companies increasingly include management reports on internal controls in their annual reports even though no regulators require them” (Willis and Lightie, 2000). I think that new SEC scrutiny may change this trend to emphasize the more mandatory nature of releasing all financial disclosure reports, thus easing shareholder anxiety. Ethics is a major feature of determining how to pay CEOs, and determining on what basis they are awarded. Due to new developments in the external business environment, I think that CEOs of today have been stressing shared vision and ethical unity among their staff by putting forth such measures as codes of ethics and ethics review boards in the effort to focus attention on the importance of ethical behavior in the administration of the workplace. It is hoped that this has shone through in terms of corporate governance in a way that does not have executives mouthing along with the code, but actually thinking about the decisions they make and why they make them from an ethical perspective. The present prevalence of ethical breaches is one of the main causal motivations of this new focus, which led to the formation of these types of concerns. It is my recommendation in the current report that executive and CEO pay should be based on the value given to the consumer and the performance of the organization in terms of social responsibility. I think that in too many cases, transparency and accountability today have become nothing but words that executives can throw around at whim, without having to deal with the consequences. Corporations today need “speed and agility in responding to new market trends and changing competitive conditions; know-how in creating and operating a system for filling customer orders accurately and swiftly; and expertise in integrating multiple technologies to create families of new products.”(Thompson and Strickland, 1997). But away from this strictly brick and mortar approach, from my perspective, it is also equally important for organizations of today to pay attention to ethical values and social responsibility, and only reward performance where performance exists. REFERENCE Bates, S (2004). Europeans close wage gap with American business leaders. Human Resources. Gelinas, P (2007). Are Canadian CEOs Compensated for International Responsibilities? Multinational Business Review. Rumelt, R. (1991). How Much Does Industry Matter? Strategic Management Journal. Thompson, A.A., and A.J. Strickland (1997). Strategic Management. New York: McGraw-Hill. Beijing probes fat pay cheques at state firms (2007). China Staff. EU to propose caps on executives, bankers bonuses (2009). AEP. Read More