Week 9: Executive Compensation

Executive compensation is excessive and is not appropriate in most cases. As mentioned in the video, in 2002 the CEO compensation to worker par ratio was 500 to 1. There is no reason that the CEO should be making 500 times more than his or her workers, considering these workers are likely the reason the company is still running. Now, 20 years later, the CEO compensation to worker pay ratio is most likely even more unequal. Oftentimes, the workers are the people who allow company goals and objectives to come true. It does not seem appropriate that these workers could be living paycheck to paycheck, while the few executives are holding all of the wealth in a company. I do agree that executives should make more than those who have lower-level jobs in the organization, but the difference should not be as drastic as it is.

One factor that might explain the rise in executive compensation is the perceived importance of the CEO and/or executives in a company. The CEO and other executives are seen as the face of many companies and are therefore seen as leaders. The CEO is often influential and makes ideas a reality. This importance that they hold gives them power and therefore, a higher compensation. Another factor that might explain the rise in executive compensation is company growth. It seems that as companies grow, the executives continue to get increases in pay. Lower level employees often do not get significant increases in pay regardless of company growth. Minimum wage requirements have been rising way too slowly over time. Minimum wage requirements hardly provide worker’s a living wage. Another factor that explains the rise in executive compensation is the stock options and/or equity plans that are offered to executives, that are not offered to lower level workers. These equity plans could amount to a lot of wealth. Another factor could be the people who decide on executive compensation. According to the video, oftentimes a company’s board of directors is full of other CEO’s, who may push for higher compensation for another CEO. Lastly, I think a large factor contributing to executive compensation is power. CEOs and other executives are competing and are continuously seeking higher compensation. People often think that the more wealth they hold, the more power they hold as well.

I understand that executives are important to a company’s success and that it is important to retain talented executives. However, I think the compensation should be divided more equally among the company as a whole. That said, the executives should still earn higher compensation, as they likely have more responsibilities and/or KSAs. I think executive compensation should be based more on performance than on status in a company. This is not to say that executives and lower level workers should make similar amounts of money, but they just do not need to be making such drastically different amounts of money either.

Sources:

Week 9 Class Lectures

Chapters 11 and 12 of Strategic Compensation

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