Executive compensation as a Macroeconomics topic - Essay Example

Executive compensation is a microeconomic consideration at most times but due to recent sweeping ments by the Federal government, executive compensation is now a macroeconomics topic. The changing economics of executive compensation is seen as a reform to fix the market imperfections (Paulin 1). However, this has resulted to some issues that are becoming wider in scope. The impacts are now felt even in the free market and recruitment of labor. Free market is supposed to function efficiently on itself without any intervention from other economic agents.

As for the advocates of free market economy, business cycles are normal (McConnell and Brue 134). But during the past years, its ability to correct itself is being put to question and so the need to apply other agents’ help was seen. Macroeconomic fluctuations affect corporations’ performance through demand and cost conditions (Oxelheim, Wihlborg and Zhang, par.1). These days, CEOs and high-level managers are being hired by companies to assist them in their operations. Of course, their services will not be free of charge, as a matter of fact, they are well paid.

But problems arise because they are now seen as contributing factors to the large cost for companies causing disequilibrium. Many believe that U.S. executive compensation is badly out of equilibrium (Paulin 1). This is because of the very high compensation that these managers charge in relation to their services rendered to the companies. The equilibrium in the market is being disturbed by the widening gap in the rate of executive compensation and other people doing the same jobs in other parts of the world as well as the rank and file employees.

If in the first place, CEOs and managers are employed to help solve the imperfections of the market but because of the too much cost of compensation they ask which is also believed to be out of equilibrium, they are adding up to the failures of the free market system. Bibliography McConnell, Campbell and Stanley Brue. Macroeconomics: Principles, Problems and Policies. New York: McGraw-Hill Companies, Inc. , 2005. Oxelheim, Lars, Clas Wihlborg and Jianhoa Zhang. Executive Compensation and Macroeconomic Fluctuations.

21 April 2008. 1 April 2011 . Paulin, George. Changing the Economics of Executive Compensation. 13 October 2009. 1 April 2011 .