Executive compensation is a major factor in how a business preforms. In many cases the duties performed by executives are at the most critical and generally steer the direction of where a business is heading. So what do you pay them?
Executive compensation has drastically risen over the years, and many wonder if these executives deserve such pay. I think executive compensation should align with the performance of the business. Many executives found themselves in hot water after receiving gains on their stock in the company despite low performance of the company; where layoffs and budget cuts effected the rest of the employees of the company, some executives in major corporations are bringing in hundreds of millions of dollars. Its clear this isn’t right, but where do you draw the line?
The company I work for is heavily influenced by its CEO. Without him the company would not operate, so its clear he is absolutely essential to the business, however a lot of the work that is physically done with the product is handled by a third party. Yes they are compensated for their time but their pay is in no way based on the company’s performance. Now lets consider how a low performing quarter could effect a CEO’s compensation if they are entirely reliant on the performance of the business. What do they have to lose? In some cases everything, especially in small/local business. Its hard to justify limiting the potential of what these individuals can make. Comparing the risk to reward is crucial in deciding compensation.
In some cases lowering an executives compensation could have a drastic effect on the business, possibly leading executives to become unmotivated and perform at a lower standard or possibly find another job. Having balance is key. There should be a modest standard amount that an executive should be compensated regardless of performance (a living wage), but be given the opportunity to make more with adding value to the company and performing exceptionally well. This is often achieved by having a structured pay scale that correlates with achieving milestones and meeting agreed upon standards.
High opportunity can be very attractive in recruiting potential hires, but a volatile pay structure that is heavily dependent on performance can also be unattractive if there is high uncertainty of what one would expect to get paid. Offering limitless potential of opportunity for compensation should be directly related to the value added by the executive. Any stock options should be standard across the board for all employees in order to avoid unfair advantages favoring executives.
