The major job of the CEO is to make important corporate decisions, manage corporate operation overalls, distribute corporates resources, etc. CEO also decides the corporate’s vision and culture. Therefore, CEO plays an important role in companies’ operations, long-term developments, and profits. The wage of a CEO is so high that it achieves $2500 per hour (Donaldson and Guay). The payment is more than 400 times the pay to average employees. It seems that CEO significantly affects corporates’ development and have high salaries.
Main Responsibilities
presents inspired leadership
make decisions on corporates’ policies and strategies
report to shareholders
design and carry out operational plans and strategies
promote corporate’s culture and vision
set morale figure incorporates
cooperate with CFO, CIO, and other executives
set alliances with other organizations
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Main Qualifications
Above Bachelor’s degree
Enough experience in senior management
Sufficient financial knowledge, including balance sheet, profit, loss, budgeting, etc.
Good capacity to set relationships with executives.
Experience in dealing with negotiation and consensus with other executives and other organizations.
Be able t make quick and good decisions, set up confidence, and promote trust.
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What factors help to explain the rise in executive compensation?
The major reason for the increasing executive compensation is the strong connection between corporates’ profits and long-term development with CEO, which makes shareholders increase executive compensation to stimulate the CEO. Executive compensation includes base pay, bonuses, equity plans, separation agreements, protection programs, and perks (Lecture “Executive Compensation”). These compensations give both short-term and long-term stimulus to motivate the CEO to promote companies’ development, and the increased profits and sustainable development of corporates also benefit CEO’s compensations. Therefore, the increasing executive compensation shows the strengthening connection between CEO and corporates and the increased profits that corporates make.
Discuss the two views on executive compensation – 1) that it’s excessive, and 2) that it’s appropriate. In what ways is each view valid? In what ways are they not?
One view on executive compensation is that it is excessive due to increasing gaps among people. One video shows the expensive executive compensation “sort of flies in the face of the sort of, more egalitarian, flatter organization that we are trying to build” (“Executive Pay”). These people consider the widening gap between CEO and first-tier workers, which exploits labor values from others, causing more unfair situations in companies. They do not view economic situations. Such an opinion emphasizes and values humans’ well-being and happiness, and they want to reduce CEO executive compensation and give more to first-tier or second-tier workers.
One view on executive compensation is that it is appropriate since it motivates people to work harder. These people consider and value the aspect of the economy, not all human’s happiness. One documentary shows that “you need one or two people who make incredible amounts of money and motivate everybody else to work longer and to be more productive, and to create more jobs and to create a more vibrant economy” (“Executive Pay”). In other words, such a high payment for CEO motivates the CEO to work harder to show his value, which enables the corporates to bring more jobs needs, production, and profits from CEO’s strategies and efforts. Such a high payment also motivates other employees to work hard to get the CEO’s promotion in their careers. Therefore, executive compensation is appropriate, even higher and better, since it can drive employees to work hard for corporates.
What changes, if any, do you think should be made to executive compensation? Why?
If possible, I think the requirements or assessment of the CEO when shareholders make executive compensation should contain first-tier and second-tier increasing payments based on companies’ profits. In other words, shareholders should consider whether the CEO can lead both corporates and employees to develop in a better way. Especially about employees, if the increasing profits of the corporates still present the same payments for other employees, CEO may just increase more work and pressure on employees and exploit values from employees. The corporate with increasing profits may have increasing employee turnovers, corporates have less loyal talents, and shareholders have to increase their dependence on the CEO, impeding corporate developments. If the CEO can increase employees’ payments when promoting corporate profits, the CEO is successful and deserving of high executive compensation.
References
Donaldson, Thomas. and Guay, Wayne. (2007). Current Controversies in Executive Compensation: ‘Issues of Justice and Fairness. Knowledge at Wharton. https://knowledge.wharton.upenn.edu/podcast/knowledge-at-wharton-podcast/current-controversies-in-executive-compensation-issues-of-justice-and-fairness/
“Executive Pay: The Issue: December 2, 2002.” (2002). Public Broadcasting Service.
Lecture “Executive Compensation.”
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