Briefly explain your views on executive compensation. Do you think it’s excessive or is it appropriate? Why or why not?
I largely view executive compensation to be excessive since as mentioned in the PBS video we watched in class, in 2002 CEOs were making a little south of 500 times that of the average worker. This huge disparity demonstrates that there is something wrong at play in the compensation system. Another issue noted in the same PBS video was that in the 1990s CEO’s pay was rising regardless of corporate performance and thus the pay increase was not justified. I would assume that similar situations are still taking place today which further makes me feel that their compensation is excessive.
However, I do see some reason for having such a high compensation for executives for such reasons as recruiting and retaining the right talent for the job. Bob Pavey mentioned that this may also increase motivation among other workers and encourages them to be more productive. I somewhat agree with this, but if the CEO and other top executives’ pay is increasing significantly more than most of the workers in the company, I believe that it may have the reverse effect. I wouldn’t be surprised if it even caused worker dissatisfaction as they feel they are not being fairly compensated for their contribution in comparison to that of the CEO.
How would you change executive compensation? What controls would you put in place? (Jamboard)
I would change the executive compensation by limiting the adjustment that would be made to the executives’ compensation each year in order to compete with the market. By doing this it would hopefully work to slow the growth of the executives’ compensation a little bit. It may also be beneficial to monitor who the board of directors is made up of. This is because as exemplified in the PBS video CEOs will handpick the board of directors to be made up of other CEOs as they may give this company’s CEO a raise because they want a raise as well. This creates an unfair system where the CEOs work to benefit one another rather than do what is best for the company. By limiting the number of executives on a board of directors it could also help control executive compensation.
What issues might arise if you decreased (or limited) executive compensation?
I think what may arise from decreasing executive compensation is that you may struggle with retention and recruitment of the right leaders that you are looking for. Also if you decrease the compensation of executives already working at the company there could be issues of dissatisfaction especially if they view their new salary in relation to executives compensation at competing organizations. If they became aware of how much more they could be making at another company, they could easily quit and switch to a better paying position. The current market for executive compensation makes a decrease or even limit in compensation very difficult to implement.
Which component of compensation do you think is most essential to recruit executives and motivate them to lead companies toward competitive advantage? Why?
I think the most essential component of compensation in terms of recruiting executives is deferred compensation specifically long-term incentives like equity plans. I find these to be the most essential as this not only contributed greatly to the pay growth for executives, but these equity plans also motivate the executives to put out their best work. This is because they know that by positively impacting the company, it can help increase their equity, which then benefits them the most in the long run. Although base pay may get the executives to join the company, the long-term incentive plans will help keep them around and motivate them to be a strong leader for the company.
Public Broadcasting Service (Producer), & . (2002, -12-02). Executive Pay: The Issues: December 2, 2002. [Video/DVD] NewsHour Productions. https://video.alexanderstreet.com/watch/executive-pay-the-issues-december-2-2002