Charges that CEOs are overpaid

Compensation system

The compensation of every employee is decided by the company owners through the board of directors (in the case of the most highly compensated executive positions) and the management team (or "management committee") (for everyone else). The board of directors may have a personnel and compensation committee that deals specifically with labor compensation.

Workers union

In some countries, the employee compensation may be negotiated with a workers union. The workers’ union will in many cases deal with for example a minimum wage limit and will not deal with the management team compensation but instead leave that to the company.

Means of compensation

There are five basic tools to compensation (or reward) in US organizations. These are:

• base salary,
• short-term incentives,
• long-term incentives (LTIP),
• employee benefits
• perquisites.

In a typical modern US corporation, the CEO and other top executives are paid salary plus short-term incentives or bonuses. This combination is referred to as Total Cash Compensation (TCC).

Short-term incentives usually are formula-driven and have some performance criteria attached depending on the role of the executive. Bonuses are after-the-fact (not formula driven) and often discretionary. Executives may also be compensated with a mixture of cash and shares of the company which are almost always subject to restrictions (a long-term incentive). To be considered a long-term incentive the measurement period must be in excess of one year (3-5 years is common).

Other components of an executive compensation package may include such perks (perquisites) as generous retirement plans, health insurance, a chauffeured limousine, an executive jet, interest free loans for the purchase of housing, etc.

Criticism

There are many controversies about executive compensation:

Charges that CEOs are overpaid

The popular newsreels say people believe that CEOs are paid too much for the services they provide, while others believe that a good CEO can have a positive effect on the company's performance and, therefore, that high compensation is needed to attract the best talent. Some argue that since the CEO's pay is set by the board of directors, with the CEO determining the selection and committee assignments of directors and most often selecting the compensation consultants as well, an unhealthy conflict of interest occurs and prevents effective price competition.

Judging which CEO's are overpaid is a complex issue. Many articles focusing on high CEO pay simply survey the executives who received the most overall money in a particular year even though the vast majority of that might be from selling stock or exercising options that were obtained over many years and were never sold before (unlike other CEOs who might regularly sell stock or exercise options). In addition many indirect corporate perquisites are possibly not included in these figures.

Defenders of high executive pay say that the global war for talent and the rise of private equity firms can explain much of the increase in executive pay. For example, while in conservative Japan a senior executive has few alternatives to his current employer, in the United States it is acceptable and even admirable for a senior executive to jump to a competitor, to a private equity firm, or to a private equity portfolio company. Portfolio company executives take a pay cut but are routinely granted stock options for ownership of ten percent of the portfolio company, in case of successful performance. Rather than signaling a conspiracy, defenders argue, the increase in executive pay is a mere byproduct of supply and demand for executive talent.

Дата добавления: 2015-10-29