Executive Pay And Company Performance

Executive Pay And Company Performance Executive pay and compensation packages are a hot topic in todays world of business and public analysis. Many top executives in the United States are seen as more highly compensated than is necessary, while other Americans are struggling to make ends meet. Even so, the cost of executive compensation continues to increase despite efforts to curtail this type of company spending. Despite the fact that the cost of compensation is steadily increasing, a company ´s performance often depends on the performance of a good Chief Executive Officer (CEO). Therefore, it is often necessary for a company to pay its CEO handsomely, usually well above the market rate, in order to retain him or her as one of the companys most prized assets. This paper analyzes this notion and gives an in-depth look into the concept of pay for performance for senior executives such as CEOs. It is important to note that a companys Board of Directors, shareholders and compensation committee are responsible for executive compensation package proposals presented to prospective CEOs, and they are charged with weighing possible risks against benefits for any particular package presented. CEO Compensation There is a consensus in America regarding executive compensation and it is the philosophy that it is better to align executive compensation with performance. It is reasonable, considering that it just makes sense that paying an executive more for better performance is motivational to the executives (Ferracone 2010). As analyzed by Gomez-Mejia, Tosi Hinkin (1987), compensation for CEOs is as follows: Compensation has three distinct components: salary, bonuses, and long-term income. The last includes a wide array of deferred compensation benefits like pensions, profit sharing, stock options, IRAs, and bonus deferrals (60). The above quote outlines the totality of the basic CEOs compensation package, not including any added benefits or perks the company deems is necessary to attract and retain their chosen CEO executive. However, the bottom line is whether or not the executive is capable of handling the responsibilities of being the top executive for the firm. According to Lewellen, Loderer, Martin Blum (1994), senior executives are responsible for their corporations sound investment and financing decisions and also to ensure that their firms shareholder and investor interests are well taken care of; however, there is concern by many shareholders and investors that their corporate executive may not do was is expected. This brings up the issue of whether there is a correlation between the size of senior executive compensation packages offered and the firms financial performance standing. A positive correlation between the two can result in a reduction of overall costs for a large corporation (Lewellen, Loderer, Martin Blum 1994). This is significant, given the fact that many smaller firms are competing in the marketplace with larger firms that can afford better executive compensation packages. Similarly, Gomez-Mejia, Tosi Hinkin (1987) suggests that economic theory concerning executive compensation is based on the human capital theory, and it relates to a companys size as being associated with how difficult a top executives job is. It is further noted that organizational size and the CEOs compensation package should be closely related and based on the complexity of the job more so than how well the job is done. However, many experts and industry professionals disagree and feel that the CEOs performance should definitely be taken into account. The obvious assumption is that a high compensation incentive would yield a high performance level and success for top executives. More CEO Pay vs. CEO Exits As illustrated by Ferracone (2010), a companys Board of Directors may see the company in a position of risk by losing a strong-performing, qualified CEO, so they may opt to reward the CEO accordingly rather than risk losing the CEO to a competitor. They see it in their best interest to retain an already well-performing CEO who is experienced with the ins and outs of their firm and not have to deal with the possibility of ending up with a less desirable executive. Morgenson (2012) reports, many corporations argue that if they do not pay high CEO compensation packages, then they will not have the most highly qualified CEO. Therefore, many corporations find it in their best interest to justify the high-valued executive rewards and compensation packages by saying that their focus is really on hiring the most competent executive instead of simply trying to scrimp on pay and end up losing a promising executive for the company. Additionally, it is a fact that plenty of management teams in companies across America feel like they have to keep up with whatever the competition is doing, in this regard, based on what the market can stand. Its a classic case of keeping up with the Jones. However, a companys compensation committee may choose to offer a compromise by presenting the CEO with a reasonable pay incentive that is contingent on company performance. This way, the company is protected from the possibility of the companys financial collapse and also having to lose the CEO by forced resignation, along with paying out a hefty CEO severance package. With this in mind, questions often arise about whether or not pay-for-performance incentives for CEOs actually work and are a good idea. In terms of pay-for-performance, it is a fact that high value incentives may not necessarily equate to good CEO performance, and good CEO performance may not necessarily mean better company performance. As outlined by Barro Barro (1990), the amount of CEO pay-for-performance increases as the CEOs relative experience increases. Additionally, as it relates to CEO turnover, CEO skill matching is directly related to compensation and the size of the corporation. It is also noted that CEO experience has an affect on pay-for-performance sensitivity. As it relates to CEOs jumping ship of a firm to join the competition, relative transferable knowledge, skills and talents is an issue. Morgenson (2012) points out that most CEO skills are not easily transferrable from one firm to the next and that CEOs do not move often because of this fact. This means that perhaps all the hype about more money and incentives every year for CEOs is not necessary to keep them, because they will more than likely not move anyway. Many CEOs are comfortable and would rather not risk jumping ship to find greener pastures and end up in a worse situation than the one they think they are in at their present company. This is a valid assumption and it is crucial to the concept of aligning CEO pay with company performance. However, some highly compensated executives are raking in the dough even when their companies are not performing well, and this is seen as highly unacceptable. Executive Compensation Overpayment Some CEOs are overpaid, in spite of undesirable company performance trends. Highly compensated top executives often accept large compensation bonuses and incentives, even when they see their company is not doing so well. A case in point is outlined in an article in the Huffington Post reports that, in 2011, the CEO of Dean Foods, Gregg Engles, was given a 52 percent increase in salary and incentives from the previous year and made $8.5 million, even though the company had a $1.6 billion loss for the year (Kavoussi 2012). This seems out of context but it is evident that this CEOs company places a high value on his presence without the organization. Another example of a CEO cashing in when his companys profits took a downturn is the case of the CEO of Omega Healthcare in Hunt Valley. His executive pay package value doubled to $7.8 million, in spite of it being criticized by a shareholder advisory firm and also in light of the fact that the companys fallen stock price and decreased profits were on the books (Hopkins 2012). These are glaring examples of CEO overpayments and many people in the general public consider it an outrage. As it relates to CEO overpayments, Popper (2012) reports that the median pay of the 200 most highly compensated CEOs in the United States was $14.5 million in 2011. This statistic comes from a study done by Equilar, a Redwood City, California compensation data firm. Additionally, those same CEOs median pay raise equaled 5 percent. This is a standout social issue and it feeds the anger of ordinary Americans who often struggle with unemployment, pay cuts and decreasing wealth. It is seen as a case of the haves catering to greed while the have-nots are barely getting by. Ferracone (2010) states some people blame the recent financial collapse in America on overly high executive compensation. CEO Pay Alignment to Performance In light of the overpayment issue, company investors points of view are often in favor of aligning CEO pay with company performance, as well as having a trustworthy compensation committee that has the best interests of the investors and shareholders of the company in mind (Ferracone 2010). For instance, a Wall Street Journal report shows that 2011 CEO pay packages were more aligned with company performance. On average, CEOs received 0.6 percent increases for every extra 1 percent of returns to shareholders. This, at least, is a measurable component to the executive compensation package issue. Shareholders often need justification of the significance of an executive compensation package before approving it. To meet approval, it is often not so much an issue about the amount of pay that is being considered for the CEO but more of whether or not the CEO is giving the corporation its moneys worth. It is a question of does the CEO meet goals and standards put in place to help the company advance. Bhatt (2012) states that companies justify executive pay to shareholders by implementing compromises such as eliminating perks, tying bonuses to corporate goals and putting policies in place that allows the company to take back bonuses and stock options from executives if the company gets into financial trouble. This is seen as a fair compromise. With this type of justification tied to compensation package proposals, shareholders can feel better about the executives worth and commitment, and therefore they can feel better about approving the executives compensation package. Say on Pay Authority In contrast to decades past, investors are heavily involved in the decisions of what to pay top executives in their companies. They have a say about pay for top executives, unlike in the past. The vehicle in which investors voices can be heard is called the Say on Pay law. The Say on Pay law mandates that public companies allow its shareholders and investors to cast votes, based on advisory decisions, regarding executive compensation (Bhatt 2012). This has shed light on pay practices and allows a check and balance approach to alert for any red flags that may arise. The Say on Pay law is also a way for investors to vote against compensation packages it deems is too much and not in the best interest of the company, its shareholders and investors. For example, Bhatt (2012) reports that a Portland-based bank had an executive-pay proposal rejected by its committee and it cut the CEOs base salary by about 7 percent last year to a paltry $815,000. This example shows a move in the best inter est of the shareholders, while still allowing for a hefty pay package for the CEO. It also shows that there can be a win-win situation with controlling executive compensation package amounts. Shareholders, legislators, regulators and the media all put pressure on company Boards to appropriately balance the vested interests of investors and corporate management (Mercer 2009). This is not only true for companies in the United States, but other countries as well. For example, Mercer (2009) reports that Europe has imposed legislation giving shareholders a say on executive compensation matters. Also, firms in Span, Sweden, Australia, Norway and the Netherlands have voted to increase disclosure of executive pay programs. These types of corporate governance reforms have become popular, though the United States and Canada are the last to implement them. It is important that new disclosure regulations about executive pay programs are presented to shareholders of companies (Mercer 2009). In addition to an increase in corporate disclosures about executive pay matters, there has also been an increase in compensation committee responsibilities in many firms. This is significant because it shows that more time is going into the decision-making process to approve CEO compensation packages and that the interest of the companys shareholders and investors is taken into consideration on a larger scale. Regulations have been strict, so it is in a companys best interest to ensure compliance to regulatory standards to avoid any possible corporate scandals (Mercer 2009). However, this presents a challenge for Board and compensation committee members to ensure an appropriate balance between executive pay with a necessity of attracting and retaining the best executive talent in the market. Additionally, when it comes to the compensation of top executives, many in the industry believe that CEO pay scales should have restrictions. CEO Pay Should Be Restricted CEO pay is often a subject of controversy as it relates to unnecessary compensation of corporate executives at the expense of taxpayers. DeCarlo (2012) reports on a study done in 2011 that revealed top executives of the United States top 500 companies received $5.2 billion in pay raises, which represents 16% collectively. Comparatively, the average American worker only got an average of a 3% raise in pay. This is an in-balance that is seen as unfair to the general public. Its the old adage, the rich keep getting richer and it shows a need for more corporate governance in this regard. In contrast, some CEOs are simply not as greedy or fortunate as others. An article by CNET News reports that the CEO of Amazon, Jeff Bezos, has passed on his pay raise and bonus for the last five years. To make up for this, though, he did exercise some very lucrative stock options (Kawamoto 2003). This is something that is seen by shareholders as a good move and is preferable. It helps the corporation but still takes care of the executive. Additionally, in the case of Amazon, a proposal is on the table for more executive compensation plans to include linking stock option cash out to an industry performance index. This means that the company executives would only get paid the large dollar amounts if the companys stock performed favorably (Kawamoto 2003). This is a compromising concept to executive pay restrictions. Similarly, Hopkins (2012) states a recent study showed that six Baltimore CEOs received large pay cuts instead of large pay raises, due to low performing company issues. For example the CEO of Corporate Office Properties had his compensation cut in half the year before he retired. This was because the company had a loss in 2011 of approximately $134 million due to plummeting stock prices. The other five CEO pay reductions were also mostly related to bad company performance but there were other factors involved as well. Another example of a CEO pay reduction instead of increase is the case of Armours CEO whose compensation package was cut last year by 14 percent to only $1.1 million, but this was in light of the fact that the companys stock prices went up and they realized substantial profits. The company justified this by citing that the CEO did not reach all of his goals for the year (Hopkins 2012). This is an example of CEO pay restrictions in place. According to Pearce, Stevenson Perry (1985), some industry experts agree that CEO pay should have restrictions. This is based on the concept that high compensation merit pay may be an inappropriate way to enhance CEO performance and statistical analyses showed this to be likely. Additionally, it is noted that CEO performance motivation should be contingent on performance but many times it is not. It is interesting to note that, according to Pearce, Stevenson Perry (1985), a comprehensive study on performance-contingent pay programs for executives revealed that implementing these types of programs did not show significant effects on general CEO organizational performance. One reason for this is suggested that managers have limited direct control over the performance of an organization and focus should be more on environmental influences that the managers are responsible for manipulating. It is important to note that even when CEOs are high-performing, they may not necessarily receive the highest pay for their performance. For example, the Society for Human Resource Management reports on a study done by a professional services firm that revealed that top CEOs of companies with the highest performance did not receive the highest pay raises. With this in mind, a question of whether or not it is even possible to successfully restrict CEO compensation and still benefit from the work of a quality CEO is appropriate. However, inefficiency in a product of interference should be taken into consideration as well as possible regulation of CEO compensation package ceilings. CEO Compensation Packages Regulation Many argue that it is unfair to have such an inequality in business as it relates to the astronomical salaries and compensation packages of CEOs in this country. However, others argue for its justification based on the fact that the CEO has the responsibility of final decisions that are made for a company and they have responsibility towards the company ´s reputation and performance. In light of this and the public attention from highly publicized, high profile corporation scandals such as the Enron situation, pay and performance of executives in the United States have come under some scrutiny (Jarque 2008). It is no wonder that the general public is skeptical and suspicious of how much money many executives make on a yearly basis. This is especially true because a lot of the money paid to these executives comes from taxpayer dollars, and the everyday American is aware of this and is not happy with it. An article from ABC News reports on a 2011 study that found tax loopholes, concerning executive compensation packages, which costs taxpayers more than $14 billion a year. This is due to CEOs receiving more in their compensation packages than was paid in taxes by their companies. Many see this as an unfair concept. It means that large corporations are taking advantage of these loopholes to lower their tax bills and the taxpayers end up subsidizing large CEO paydays. This is possible because, as it stands now, companies can take off executive pay as a deductible business expense on their taxes, so the trick is the companies pay the executives with stock options, which are exempt from taxation (Kim 2012). So, taxpayers get stuck with the bill and CEOs reap the rewards. Regarding regulation of CEO compensation, however, there needs to be some. Jarque (2008) reports over the last 20 years, the average pay of CEOs working in the top 500 firms in the United States increased some six-fold. This compensation was mainly performance-based and was paid in stock options. It is also reported that regulatory standards, imposed over the last 15 years, that affect executive compensation include changes in corporate capital gains taxes, limits on deducting CEO pay expenses unless they are performance-based, increased company disclosure requirements, and standards on option grants expenses (Jarque 2008). Additionally, studies done following regulatory changes show a shift of compensation trends from salaries and bonuses to stocks and options (performance-based compensation). Jarque (2008) states, This suggests that regulation efforts to improve corporate governance and transparency have been moving in the right direction, although it is difficult to evaluate the relative importance of regulation versus the market induced changes in governance practices (267). Conclusion Executive compensation is a significant aspect of corporate governance and is often governed by a companys Board of Directors, investors, shareholders and compensation committee members. Executive pay typically consists of salary, stock options, benefits, bonuses and other perks deemed appropriate, based on different company preferences. As noted above, executive compensation has disproportionately increased relative to the average American worker and this is often seen as a negative in the public eye, so it is a growing social issue. To help change the view of executive compensation as a root to evil, measures have been put in place to gear executive compensation packages more toward pay-for-performance. This equates to more executives receiving their bonuses, rewards and incentives only when their companys are doing well financially. In todays competitive business world, many companies are looking for new and better ways to attract and retain the highest qualified CEOs to help lead their businesses to financial success through growth and expansion. Therefore, many companies are prepared to offer and follow through with paying handsome compensation packages to existing and prospective CEOs. Many firms are prepared to justify paying CEOs compensation packages above the market rates in an attempt to retain the services of what they feel is their most prized asset the CEO.

Setting Of The Great Gatsby Essay -- essays research papers

The settings and backdrops in The Great Gatsby, by F. Scott Fitzgerald, are essential elements to the formation of the characters, symbolic imagery and the overall plot development. Fitzgerald uses East and West Egg communities to portray two separate worlds and two classes of people that are technically the same their status, but fundamentally different in their ideals. The physical geography of the settings is representative of the distance between classes of the East and West Eggers. Every setting connotes a different tone and enhances the imagery of story line. From the wealthy class of the "eggs", the desolate "valley of ashes", to the chaos of Manhattan. The imagery provided by Fitzgerald becomes an important tool in establishing the characters and their story. The separation between the east and the west shows the division between the people who are from each side. Generally, the West Coast represents a more laissez-faire attitude and is seen as the "new" land or world. Many people have dreamt of "going west" in search of a new life or vast treasures in the "wild" lands. Fitzgerald associates these qualities of the West with the characters Nick Carraway and Jay Gatsby, who live on the West Egg. On the other side of the spectrum lie Tom Buchanan, Daisy, and Jordan Baker. These characters are associated with a stereotypical East Coast mindset which is more strict, traditional and ancestrally based, as opposed to the "new" and "wild" West. They resent anything that is unfamiliar to them such as the West Eggers with "new money" and no traditions. The distance and mindset of the East and West are symbolically integrated into the East Egg and West Egg which are representative of the soc ial class of which the characters come from. The physical settings establish the identities of the characters through their wealth and houses. The West Eggers represent the social class of the nouveau riche, people who have made fortunes recently in their generation instead of having inherited wealth. The East Eggers have had money in their blood for many generations and have an established presence in their community. The houses of both classes are evidence to this fact. Gatsby's mansion is designed in an newer European style unlike the Buchanan's more colonial style house and is decorated with... ...nt stage. The Great Gatsby starts out in the springtime, a time of new growth and beginning. The story takes place until the end of summer and beginning of autumn. As spring and summer pass by, steady improvements, it seems, are occurring in Nick and Gatsby's relationship. Gatsby's death is synonymous to the death in autumn. Falling leaves and dying shrubbery coincide with Gatsby's own death. The progression of the story is parallel to the changing of the seasons. The reflection of the tale can be seen through the weather and changing seasons. Fitzgerald uses the setting and seasonal change to create the progression of the characters, symbolism and the plot. The backdrops create the framework that the characters live in and interact. The setting of the story creates all the contrast between East and West, "new money" and "old money" and the social classes. Not only do the physical representations of these differences separate the characters and create their character, but also a more representative division is shown. By using symbolism embedded with actual display of its imagery, Fitzgerald is able to capture both, a symbolic essence and tangents of reality.

Elizabeth Cady Stanton Solitude of Self Analysis

Solitude of Self Elizabeth Cady Stanton Solitude of Self speech addressed the equality and rights of women in the United States. She felt as though women should have the right to choose whatever path they wanted no matter what the circumstances were. Stanton illustrated that, in order for women to be considered as participating citizens of our country, the boundaries of what women can do had to be omitted. Women were entitled to the same equalities as men because throughout the darkest situations gender doesn’t change the feelings and emotional damage that an individual goes through.Stanton explained how there is no difference between men and women, humans were created with the same natural rights. The fact that men have no restrictions and can pursue whatever they wanted, puts women at a disadvantage. Men had the basic necessities to protect themselves in which women lacked. Stanton illustrates this when she says, â€Å"In fitting out an army, we give each soldier his own kn apsack, arms, powder, his blanket, cup, knife, fork and spoon.We provide alike for all their individual necessities; then each man bears his own burden. † In this quote, Stanton was making reference to how a man in the army gets equipped with the basic necessities and skills to survive; but women do not get the basic necessities in life to survive on their own. The law in our country made women to dependent on men and she just want women to be able to be independent without barriers.

The Mesopotamian Social Classes And How It Had Affected...

My Research assignment talked about the Mesopotamian social classes and how it had affected the education back there. Mesopotamian social classes definitely affected the education back there. It is so important to learn about the civilizations of different generation, and one of their most important keys is education. Different social classes had affected the education’s methods and level, who gets educated, and the importance of getting educated for Mesopotamian people. And after all, I’ll speak about the part I find most important, the different between the modern and the ancient Mesopotamia. The reason I chose that topic is that because of the huge importance of learning over centuries. the precise arrangement of learning procedures to most kids has been an advancement of the last 200 years or even most recent 50 years in a few nations. Schools for the youthful have generally been supplemented with cutting edge preparing for ministers, officials and experts. The human progress in Mesopotamia was governed by lords and had a direct social structure separated into four classes. Mesopotamian culture and legacy was essential in the advancement of mankind s history, as it was the origin of religions, urban communities, Agriculture and many other things. And after that I’ve learned about the several social classes found in ancient Mesopotamia. The top class comprises of Kings and ministers, otherwise called the amelu class, were intense. The PriestsShow MoreRelatedAp World History Units 1-3 Study Guide Essay4374 Words   |  18 PagesUnit One 1. Consequences of the Neolithic Revolution didn’t include * End of hunting-gathering societies 2. Most scholars believe that, during the Paleolithic Age, social organization was characterized by * A rough social equality 3. The earliest metal worked systemically by humans are * Copper 4. The spread of the Bantu-speaking peoples over southern Africa can be best explained by their * Knowledge of agriculture 5. Characteristics of complex civilizations