The issue of the executive pay raises heated debate today considering the gap differences in the civil income. For instance, assuming example of the U.S. government, President Obama governance faces public fury over the huge pay packages accorded to the executives. (Andrews and Bajaj, 2009) The issue of prohibiting extra bonuses for the top executives beside their hefty basic pay and other stock dividends is therefore under high consideration beside the rules imposing reductions. If imposed, the rules will be the toughest ever forcing the executives to accept deep reductions.
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Arguably, considering a $500,000 annual compensation would be draconian considering the lack of bonuses or annual dividends. The recruitment process would be very difficult due to competition especially from the private sector offering over $1 million.
The U.S president seem to advocate for the pay regulations considering that this is the time the government is struggling to bail out prominent collapsed financial institutions. According to Andrews and Bajaj of the Times Newspapers (2009), the National Economic Council is considering pay restrictions to all the companies under the Federal help of economic recovery.
The executive’s compensation ware not under particular specifications, the rule applied earlier on bailed out banks failed because of the government’s failure to impose a strict follow up mechanism thus living the executives to reward themselves with the heft bonuses without considering the deterioration of the economy. The question many people ask is whether the executives should make the much they do.
The high pay may appear to be very little in comparison to the huge company’s profits the top executives deliver at the end of the financial session. In line with Daft et al, (368) when the company’s profits measure up to the executive’s pays then it seems too low and therefore reasonable. Probably it would make sense to reward the executives who are directly involved with the capital of the company.
They are usually under a lot of pressure to deliver and although it may seem ironic, their pay is excessively little, compared to what they deliver. This might be the only logical way of rewarding these employees for their tremendous work. It motivates them to ensure success and future developments. Payment should always reflect performance and this is most certainly the reason why the American government advocates for pay regulation especially among the financially assisted companies.
“Reasons behind the hefty pays of the Chief Executive Officers”
This paper explores the issue of the compensation that the top executives receive the reasons behind the pay and it offers the suggestions for improving the system.
Do the top executives deserve their pay?
It is evident that top executive receive exorbitant remunerations and most people feel that majority do not deserve the compensation. Some of the executive end up performing a mediocre job and still manage to rip off the taxpayers because of their titles. Common feeling indicates that these individuals should receive their compensation depending on their performances.
While the arguments against the pay are viable to certain levels, the other side of the coin indicate that these executives earn and deserve every penny of their paychecks. (Mackenzie and Traynor, 132) They undergo enormous amount of pressure to ensure companies deliver profits. They have to make tough and important daily decisions, which are the key measures of whether the company prospers or fails.
The failure of the company compromises their jobs therefore their careers are at constant risky measures. Most of the CEO did not just become what they are but had to move up the ladder systematically to the top positions. They have total endurance and strong business backgrounds and knowledge to steer the company through maintenance of an effective workforce. (Daft et al, 342)
According to Daft et al, (556) there are very few people with enough knowledge and experience to guide or control the performance of big, especially financial companies to their performance value. This aspect makes the executives an important and valuable part of the company hence the reason why they deserve the high pays. The public seem to base their arguments over the executive pays on half the picture. The profits earned by the companies are excessively high in comparison to their remunerations.
A good example is the ATT Company chief executive officer who is arguably one of the top paid officials. (Mathias and Jackson, 137) People’s view over the executive’s move to layoff 40,000 employees and still enjoy his increased pay seems greedy and illogical. At a close range, his laying-off of excessive workers brought great benefit to the company as well as to the customers who benefited from better services at a proficient timeframe and lower cost by smaller but improved workforce.
Comparing the executive’s pay of 20 million dollars, which seem too huge to the company’s earning, it would equate approximately to 1/3,450th of the gross thus validating his pay against performance. If split among the workers, the executive’s pay would equate to $500 which is a pay equitable to a just a couple of days pay for a low-level employee.
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Executives need to be very keen in their decisions, less it bring down the whole company crumpling to losses. They ought to ensure transparency over all their moves or decisions since they affect a magnitude and the economy at large. (Daft et al, 557) The superfluous amount of tension and pressure evident today is due to these factors and thus the reason why not every CEO can be able to handle their tasks as per the requirements.
What guarantees good performance of the CEO?
The huge amount of money involved in compensating the executives is a good indication that there is no good assurance for their performance. The pay acts as a great motivator to performance. Without a good pay, they would probably find better paying jobs or one without much strain but having an equally good pay package.
It would be a great risk for a company to engage an executive and pay them poorly because that person would not get involved as required and therefore the probability of a collapse is high. Other than collapse, the company can easily experience weak profit margin compared to other business rivals. (Mackenzie and Traynor, 102)
The executive’s thrive to venture deeply into the industry depends on the payment received. Good focus on goals elevates the business into great heights.
When a company makes good investments such as the hefty pays for the executives, then the company’s performance elevates to a good performance. The CEO is able to put much emphasis on the firm and tolerate smaller margins for errors thus ensuring great profits. They suffer negative affects or enjoy positive rewards depending on the performance of the business. (Mathis and Jackson, 35)
The plausible reason why the American executives receive more money than other countries is that they work out tasks at larger scales compared to others. From this perspective, the companies should therefore not be concern with the payment but focus on the delivery factors.
It is easy to find qualified people to work at the same capacity at lower wages but they are not able to cover the same magnitude of the job. This means that there is a need to analyse and reward the executives in relation to their inputs. The businesses ought to acknowledge that the executives deserve pay equivalent to their inputs.
Need for quality workers may make a company to find it reasonable to hire executives from other countries and therefore outsourcing does not mainly mean the company want to find someone for he top job with minimal and more reasonable wage rates as most people may think.
The company is responsible for the high wages and not the worker. This negates the reasoning that finding such employees at a reasonable rate is not possible. The company decides on the payment rather than the employee demanding for the same. Pay should reflect performance and for this reason, the company or those in the industry have the right to decide on the amount of remuneration to offer. (Mathis and Jackson, 35) this is an indication that the executives deserve their pays.
Problems with systems that support the hefty Executive’s Pay
Most of the executive wages are not reflective of the employee’s performance and hence the basis for this debate. The executives receive the same treatment regardless of their poor or very prolific performance. This means that the company may be losing huge amounts through such pays as the persona benefits, especially when their no good procedures for investigating performance and linking the compensation to the firm’s profit margins.
When an executive has room for enjoying power and good pay while reciprocating nothing on the other hand, then when taken to consideration, this is abuse of power and they will not attempt to do a good job. There is need to have a correlation between the qualities of the work and the hefty pay that the CEO receives.
Most collapsing businesses today lack proper monitoring systems over performance especially the government run firms. The top managers continue delivering bad jobs while they still enjoy good constant pays and probably have power to award themselves bonuses and rises. According to Daft et al, (342) It may cost a lot to get rid of bad employees particularly those at the top levels, but overtime, the losses incurred as the company hopes for recovery my eventually be the root cause of collapse.
Most of the CEO jobs are under contract basis, this means that if the period is cut-short, then the law protects the officials and the company must compensate them for their early removal. This is another reason why many companies fail to terminate the executives. The need to avoid court cases makes the company to hold the unwanted personnel until their terms expire.
There is urgent need to incorporate a link between the compensation package and the business performance record and probably include the same in the contract forms as an incentive to produce more. Executives can have an offer with the basic pay and allowances but the bonuses be rewarded in line with the performance or business profit margins. Amazing facts indicate that human performance has a main basis upon monetary rewards. (Daft et al, 372)
Top executives make hefty pay packages but most deserve the remuneration they receive because of the business performance. They make key decisions every day, work under pressure to deliver and their jobs and titles are arguably the greatest all over the world thus they are internationally competitive. Assessment however indicates that only a fraction performs as per the requirement and thus the need to regulate the pays.
The issuing of a basic salary and adjustable pay rise depending on the company’s performance would work fine. This would be a way of having a distinction between the best performing executives from the rest.
The government should consider more legislature of the workers pay as per the performance levels as a measure of guaranteed routine by the top executives. Companies are in a position to give a breakdown of performance through the accountants as the foundation for remuneration just as the taxation processes. This would be an excellent measure to curb loopholes.
There ought to be an internationally standardized payment levels for the top executives to enhance balanced competition. The contraction procedures also need to integrate means of escaping the clauses that bring about allegations if the company breaks the contract before time especially when the employees perform below expectations.
These measures ensure only the best executives remain in business and thus making the companies to be more productive as well as successful. The aspect of highly paid executives would only be acceptable without disputes or controversies with the implementation of the important ideas discussed herein. Most importantly, the pay ought to reflect on business performance.
Companies are tying to embrace these aspects as evident with the Mercer Company whose recent advertisements for a top executive post specified ability to “generate revenue through development of new client relationships, cross-selling to current clients and extension of current client engagements”.
Daft, Rechard .L., and Marcic, Dorothy. “Understanding Management” Mason, OH: Cengage Learning, 2008.
Edmund, Andrews, L. and Rajaj, Vikas. “U.S. Plans $500,000 Cap on Executive Pay In Bailouts” The New York Times. (2009). Web.
McKenzie, Steven, J., and Traynor, William .J. “Opportunities in human resource Management careers: VGM opportunities series” McGraw-Hill Professional, 2001.
Mercer Human Resources Consulting, Job Description for Senior Executive Compensation Consultant, Mercer web site. 2009. Web.
Mathias, Robert, L., and Jackson, John, H. ”Human Resource Management: Essential Perspectives”. South-Western Cengage publishers, 2008.