During class we had a discussion about executive compensation and whether or not executive compensation is excessive or appropriate. In this post I will be talking about my own thought on the subject, what we have talked about in class, and what can be done to lower this problem.
First, my own thoughts on executive compensation. In my opinion, I do think that the amount of compensation that an executive receives is a little bit excessive. These individuals are getting more money than they can use it, even if they tried. I like to think of the distribution of the money like a pie. An executive in a major company is seemingly receiving almost all of the pie, while the rest of the employees are only getting the crust or even only the crumbs. I feel that this can be better distributed as no one needs all that money and having a little bit of that be distributed to the workforce can be life changing for all of those individuals. Especially for front-line workers. They are the backbone of the company and without them the company would not even be able to do any sort of business. Overall, that is my thought on executive compensation.
Next, the things that we have discussed in class. We found out that the majority of the compensation for executives is actually coming from shares of the company. This is not outright money, but this is still a lot of assets that any one person should have. The reason why most of the compensation is in shares is that if an executive were to receive the money outright nothing is stopping them from just taking all that money and leaving the company. With shares, they can’t sell it until their contract period ends. This does not apply only to executives though. Early employees of Amazon received shares as compensation and since the price of the stock has increased so much, this acts as a golden chain. Where the employees are unable to leave because of the sheer amount of money that they have tied with the company.
Now to create change for executive pay, we would be looking to decrease the number of shares that the executive receives as compensation. And have their pay be closely tied to the success of the company. So, if the company does badly then their pay should reflect that. Although, I said that there are some problems. Like I stated before the reason why an executive gets so much compensation in shares is that it is a way to make sure that the executive stays with the company. Decreasing that too much will just make executives go in and out of companies to make a lot of money with little to no commitment. That is why the most essential way to recruit these executives is to incentivize pay through company growth and success while decreasing the number of shares in a balanced way. This ensures that they take actions that benefit the company as their pay is directly affected by it. Overall, the situation with executive pay is tricky but with some changes, there can be an improvement for all parties involved.