Rewards offered to employees in most organizations are based on their roles and performance at their place of work. The rewards are determined by the decisions made by the management with regards to the kind of work assigned to each of the employees. Rewards take different dimensions. They include salaries and bonuses offered to the workers. All these elements are determined by the management. The benefits vary in terms of rank and the position occupied by the employee in the organization. In addition, they do vary from one firm to the other. It is noted that CEOs and members of the executive earn more than the other employees. However, some critics argue that the rewards given to these officers should be reduced (Snell, Morris, & Bohlander, 2015).
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In this paper, the author will review a case study of the rewards given to CEOs in the American auto industry. The questions are related to the case study titled “United States auto industry back on to of CEO pay”. Among others, the paper will analyze whether or not the executives are worth the pay packages they receive. The arguments put forth by Peter Drucker and the Dodd-Frank Wall Street Reform and Consumer Protection Act will also be reviewed.
A Case Study of Executives in the American Auto Industry
Chief Executive Officers and other Corporate Executives Deserve the Large Pay Packages they Receive
Decision making is the major determinant of success in any business. The decisions are part of the innovative ideas brought forth by the executives and the CEOs of any organization. Ensuring the success of the business through improved management of resources in an organization is the major responsibility of the executives and the CEOs. According to Snell et al. (2015), executives have the power to turn around the business and maximize profits. A case in point is the performance of the executives in the American auto industry. For example, Allan Mullally of Ford turned around the profits of the company. His efforts earned him $56.5 million worth of stock. Under his watch, the shares of the company increased from $1.56 million to $14 million (Snell et al., 2015).
The corporate executives deserve the large pay packages they receive. The reason is that they put a lot of effort into the organization to make it grow. It is also indicated that the performance threshold is a major aspect of the pay plan offered to employees. As such, an executive who works to uplift the company deserves more pay (Snell et al., 2015). Another factor justifying the hefty benefits offered to CEOs and executives is that the organization cannot afford to lose a skilled and performing manager. Losing such an employee to the competition will dent the performance of the firm.
Peter Drucker is Right: The Pay of Corporate Executives should be Regulated
According to Peter Drucker, the compensation package offered to corporate executives should be pegged on the pay of hourly workers. I agree with this argument. The reason is that in most instances, the amount of resources utilized by organizations is directly proportional to the output. In this regard, it is reasonable to argue that the overall performance of a firm relies on the number of resources and the efforts put in place. Human resource management, which is a major determinant of the performance of the business, is a major function of the CEO (Snell et al., 2015). As such, the recruitment and management of employees reflect the outputs desired by the executives.
In spite of the critical role played by the CEOs, the economic strain associated with their wage bills makes it important to regulate their compensation packages. To this end, their rewards should be determined by the ‘hourly pay-off’. The aim is to balance and regulate the offers provided to all employees. When this happens, the organization will ensure that other employees do not demand unreasonable packages, which may be unsustainable (Snell et al., 2015).
The Impacts of the Dodd-Frank Wall Street Reform and Consumer Protection Act on Executive Pay
The Dodd-Frank Act is one of the most important legislations in the human resource field. It shields firms from the inflated salaries offered to executives in the corporate sector (Snell et al., 2015). The act is likely to influence the size of packages offered to executives in the future. The legislation gives the shareholders a right to determine the salaries of CEOs through a vote. It gives the shareholders the authority to approve the rewards given to the management team. Consequently, the act will have significant impacts on the size of the packages offered to the CEOs.
According to Snell et al. (2015), all the firms listed on the securities market are required by law to disclose the salary of its employees. In light of this, the shareholders are expected to determine the rewards offered to the executives. As such, conflicts with the auditing and regulatory bodies are averted. It is also noted that the accounting standards require companies to record stock options for purposes of creating financial statements. The statements should not be manipulated as they are used during auditing.
Corporate executives and CEOs determine the success or failure of a business. As such, they should be given attractive packages to motivate them and improve their performance. However, as noted in the case study analyzed in this paper, the system of assigning the packages should be controlled. When this happens, all the employees can benefit from the success of the firm.
Snell, S., Morris, S., & Bohlander, G. (2015). Managing human resources (17th ed.). Mason, OH.: South-Western College Publishers.