Today I was given the question of “Is executive compensation excessive or appropriate ?”. Prior to watching the PBS segment, I would have said that the executive compensation is appropriate because higher pay is correlated to high performance. Although I still think this is true, I do also think that the pay gap is a bit excessive. CEO’s are making not just a an extra $50,000 more a year than your average worker but sometimes millions more.
Being able to pay your executives more will not only motivate them to continue working in a highly stressful leadership role but can allow other employees to have a higher level of respect for the work their executives do. This being said, I believe slightly above-average compensation would be appropriate for executives.
Overall, there are three main components of compensation There is core compensation which focuses on base pay and bonuses/short-term incentives. Core compensation has been proven to make up only a small percentage of an employee’s compensation. In addition, deferred compensation is a long-term incentive and includes separation agreements. Deferred compensation is most helpful to promote the recruitment and retention of executives. The last component of compensation is benefits that offer protection programs and perks. This allows key employees to use company property for personal use, however is only useful when it used to benefit the company.
Among the three components of compensation, I think deferred compensation is most essential for recruiting key employees that will be motivated to lead the company toward a competitive advantage. Deferred compensation allows for the key employees to have part ownership or stock options that can align their interests with their shareholders. Furthermore. separation agreements are another big reason for motivating key employees to lead the company toward a competitive advantage. These are great for after retiring from a company because executives will continue to receive compensation. When executives have ownership of their companies stock and can ensure that they have the company’s best interest at heart. At this point, the company’s gains and losses become the executive’s gains and losses.
Recruiting executives/ key employees can be a really big decision for a company to make because of their leadership role. Make sure to attract the right kind of executive that will have the company’s success in their best interest can be challenging. Using deferred compensation should be helpful when attracting a potential key employee candidate.