When discussing executive compensation, I would have to lean more towards the excessive side of the argument. I understand that these individuals are experienced, have power, influence, expertise, and connections, however, these packages are insane. It can be important to bring these individuals in because they have the ability to tip the scale of a company, but is it truly worth it when they earn over five hundred times the average employee? I understand that these packages are set in place to keep them around and ensure success, but when do they stop? As in the PBS segment, “Executive Pay”, it’s a contagious effect where CEOs will just keep getting paid more. Their astronomical pay has to demoralize employees to a certain degree, especially when they never even met the individual. It is difficult to say what the right thing to do is, especially if your company does not pay them because someone else will. CEO pay should be altered slightly to reflect quarterly and annual profits more to ensure their success and dedication.
The PBS segment on “Executive Pay” did an excellent job of explaining why CEO pay has drastically reason. First, the board of directors considers the CEO to be the single most important factor in the future success of the company for the next five to ten years. They believe the influence and expertise this individual brings is the best thing for the shareholders and the organization. Additionally, with the board of directors, it is important to know that most of the time, the board of directors are CEOs themselves. They are going to be biased when discussing compensation because they know they can use it as leverage at their own company. Second, the stock market boom, starting in the 1990’s CEOs were given more stock options to buy company stock at a bargain price. Third, a survey was done, and it found that companies want to pay their CEO above-market or in the top 25%; because of this, the average is always rising due to companies are always having to outdo each other. It became a snowball effect of compensation rising. And lastly, with the growth of technology, surveys, and growing information, CEOs were able to see what other CEOs were making. This allowed them to utilize this information and further leverage their compensation.
As mentioned before, executive compensation should become more performance-based rather than company size. This should increase participation from CEOs and ensure they are doing everything in their power to help the company. When thinking about the board of directors, it is difficult to make changes because, on one hand, you could argue no CEOs so there is no bias, but is that the best decision? They are successful individuals, and you want them in your corner, but when discussing executive compensation do they have the best interest of the company or themselves? For there to be real change, I believe greater tax enforcement and transparency will be necessary.
