When it comes to the idea of executive compensation, I would argue that the compensation is excessive between the pay gap among workers on the lowest levels and those in higher position. With this, I can see how the excessive salary can be justified and can be a valid argument from those in executive positions to some extent. My rational for this is that those in executive position have more responsibilities, demand, and their workload is more intense than those on lower levels. However, I would argue that the amount they are being paid are too much which is creating a large pay inequity among companies. An example, of this can be seen in 2018, where the median total compensation for S&P 500 CEO rose 4% to $12.3 million. As well, this can be seen in Microsoft’s CEO Satya Nadell who got a 66% raise making his compensation roughly $43 millions and CEO Bog Iger $66 million compensation package which was greater than 1,000 more than the median pay of employees at Disney (Sahadi, 2019).
To add, something that was interesting when it comes to executive compensation is CEO compensation has grown quicker than the pay of the top 0.1% of wage earners which indicates that CEO compensation growth does not reflect a competitive race for skills and productivity only rather it reflects an increase in the value of highly paid professionals. Rather, CEO compensation can reflect the power of CEOs to extract concessions (Mishel, 2021).
Some factors of that can help explain the rise in executive compensation can be the components of executive compensation packages which can include the annual base pay and bonuses, short term incentives, differed compensation, equity agreements, and stock options (Mochichi, 2019). In which these variables are taken in consideration when choosing to hire and retain CEO’s and be competitive in the market. As companies are matching and or trying to gain a competitive advantage when securing a valued CEO which is causing a rise in compensation.
Another factor, that can be the board of directors of a said company who can advocated and argue for a said salary. As they are key stakeholder within the company, they can use their power within to advocate for raised based on how well the company is preforming and base their decision on how they feel the CEO is doing and or the direction the company is headed. In combination, hiring and retaining a CEO that has a good reputation and is paid well can indicate perceptions of profitability and can gain new investor interests (Whelton,n.d).
When it comes to executive compensation, I do think that it is subjective to the company. As the company and its shareholders have an influence on how much they are willing to pay their executives and benefits to offer them. However, to reduce inequity’s among executive compensation and those that are lower there needs to be some sort of policy that put limitations on how much a CEO can make and or have a capped salary increase during the year.
Along with this, I do think that there needs to be a better way to manage CEO performance and compensation should be adequately based on those said performance metrics.
Bibliography
Mishel, Lawrence. 2021. “CEO Pay Has Skyrocketed 1,322% since 1978: CEOs Were Paid 351 Times as Much as a Typical Worker in 2020.” Economic Policy Institute. Retrieved March 5, 2022 (https://www.epi.org/publication/ceo-pay-in-2020/).
Sahadi, Jeanne. 2019. “Why CEOs Are Paid so Much.” CNN, October 24.
Whelton, Russell S., and Deborah R. Bishop. n.d. “Effects of Excessive CEO Pay on U.s. Society.” Svsu.Edu. Retrieved March 5, 2022 (https://www.svsu.edu/media/writingprogram/activedocs/Whelton_article.pdf).
Martocchio, J. (2019). Pearson etext for strategic compensation: A human resource management approach — access card (10th ed.). Pearson.
