I personally think that executive compensation is validated. These executive have an extensive amount of responsibility and duties and they deserve to be adequately compensated. However I did not agree with Crystal in the video when he expressed that he wanted to further the gap between executive compensation and other employees. While I do believe these executives deserve to be paid more, I don’t think it should become such a wide gap that it angers employees and creates a negative culture. By keep the gap at a reasonable amount it also shows the humility of the executive and helps employees to understand why they are paid more rather than driving them to resentment. In the video it gives examples of CEO’s that were paid almost 500 to 1 of their employees. This to me is too extreme of a pay gap.
One major factor that explains the rise in executive compensation is that “the boards of directors in the US are seeking outstanding leadership and they consider the CEO to be the single most important factor in the future success of that company in the next 5-10 years”. Therefor they justify this significant executive compensation to help ensure the best future for their company. They see this as “paying for performance” however there is not clear link between their pay and the performance of the company.
In the video it mentioned that in the 1990’s, CEO pay was rising regardless of the company performance (profit). This is not justifiable to me. As we have talked about in class “paying for performance” is one of the most effective motivation tools (Michele Swift Week 6 Lecture). This helps correlate and justify the amount an executive is being paid and the performance of the company. Therefor I think that more companies should implement this type of incentive based pay to be able to justify the significance of higher executive pay. Their pay should only be increased if their performance truly increases. This will also help employees to see the connect between the success of the company and why their executives are paid a substantial amount more. Another change that could be effective is implementing “incentive based pay” as we also talked about in class (Michele Swift Week 6 Lecture). They could do this by setting profit goals for the company and incentivizing the CEO to reach these by providing a bonus at the end of the fiscal year. Therefor they are being properly rewarding for producing better performance.
