CEO compensation began to rise after the 1990s stock boom when CEOs were given the option to buy stock of their company at bargain prices. Executive compensation soon became a pay system that spiraled out of control, paying CEOs an average of 17.2 million dollars a year as of 2018. I feel that executive pay is excessive and should have limitations put in place to control how much they are paid annually. Although CEO decisions often take time to show benefits, I don’t think one single person can influence an organization that greatly and should not be paid almost 50 times the amount of some other employees within their company.
Some of the ways I would change executive compensation would be to first put a maximum cap on executive compensation. Making companies have a cap on CEO pay packages forces them to not continue creeping up on each other and increasing the average salary. Because they want to stay competitive with each other and recruit the best CEOs they continue to increase their executive compensation causing other companies to continue increasing theirs as well. Second, I would also make CEO pay based off of the performance of the company. If the company had a bad year the CEO should also be paid accordingly. Lastly, I would diversify the board of directors that determines and analyzes CEO compensation because often times they are also all CEOs who sit on these boards and decide to increase pay for one company, which then increases the pay for each of their companies as well.
I think if executive compensation was limited or decreased many people would be very upset. Many of these CEOs have spent most of their professional lives working to get to these positions and feel that the current compensation is justified due to their hard work. The components I feel are most essential to recruit executives and motivate them to lead companies toward a competitive advantage would be offering long term incentives and perquisites. Offering to pay out CEOs through stock options not only gives them a nice long-term incentive but also motivates them to work hard. I also feel that offering competitive perquisites is very important because many CEOs have worked very hard to get to this position and providing them competitive perks will set them apart from other companies.