“CEO Pay and the Top 1%: How executive compensation and financial-sector have fueled income inequality”. This article by Mishel and Sabadish (2012) examined the role of executives and the financial sector in the growth of incomes of the top 1 percent. The authors recognized the distinct aspect of growing inequality in the US is the wage gap between the top earners and other earners. The unequal growth in earnings enjoyed by the executives is the key driver of the wage gap. The authors revealed that the earnings from 1979 to 2007of the top 0.1% grew by 362% and at the top 1% by 156 percent. Whereas those people in the 90th to 95th percentiles enjoyed a wage growth of 34%, and those in the bottom 90% only enjoyed 17% wage growth. Three factors were identified as drivers of the wide gap in income between the executives and other earners: large increase in wage inequality, rising inequality of capital income, growing share of income that goes to capital. These three factors led to a more than doubling of the share of total income received by the executives and the large income gap between the top 1% of income earners and other earners.
“Getting Executive Compensation Right”. The article by Narayanan (2009) talks about executive compensation regulation and how pay must be structured in a way that the pay system attracts the right people who, in turn will be motivated to lead the company towards the attainment of its overall goal. Narayanan (2009) maintained that an effective compensation system should give emphasis on effective learning and growth for the organization, improvements in processes, as well as customer-related metrics and milestones. He further argued that “one size fits all” compensation would not be effective especially that strategies between companies obviously differ, which likely calls for differing compensation practices.
“Executive Pay Controls – Bad idea then, bad idea now.” The article by Crystal (2008) talked about the government’s attempts to control over the executive compensation. The Congress and the bureaucrats attempts to rule in executive compensation have only aggravated the problem to the issue of sky-rocketing pay of the top earners. He suggested steps in reforming the system to help forge a better relationship between pay and performance: regulate the extreme outliers, that is, pay controls may only be applied to companies that will be found to be paying excessive compensation through the Internal Revenue Service; and softening of the business judgment rule.
The articles generally discuss the trend in executive compensation. The most recent article by Mishel and Sabadish (2012) explored the factors of the high earnings by the executives, Narayanan (2009) discussed how executives should be paid, and Crystal suggested ways on how to controlling the compensation of executives that synchronizes pay with performance without hurting everyone. Obviously, compensation of executives has been a hot topic since the financial crisis. The point of the articles is that, the design of the executive compensation is determined by the decision of the Board of Directors of the company. Shareholders may be able to influence compensation by not voting in favor of compensation committees that agree for unreasonable pay.
Crystal, Graef (2008). Executive pay controls – Bad idea then, bad idea now. The Crytal report on executive compensation. Retrieved from http://www.graefcrystal.com
Mishel, L. and Sabadish, N. (2012). CEO pay and the top 1%: How executive compensation and financial-sector pay have fueled income inequality. Economic policy institute. Issue brief #331. Retrieved from http://www.epi.org.
Narayanan, V.G. (2009). Getting executive compensation right. Retrieved from http://www.businessweek.com/managing/content/jun2009/ca20090623_810874.htm