Critics of executive compensation have brought up several controversies. Any individual involved with regular executive compensation such as CEOs and human resource heads should be in a position of answering any controversy-related questions, thoughtfully and knowledgeably. Organizations approach the executive compensation decisions in their own ways, in relation to the organization’s circumstances, beliefs and values. CEOs and trustees make decisions that they think are most appropriate for their organizations (Fuchita; et al. 2010). Trustees have the onus of governing executive compensation with the aim of making sure the decisions made are wise through community leaders that are well familiar with the organization. Being familiar with an organization entails comprehending its values and various circumstances, which enable one, to make informed and trusted decisions that are in the best interests of a specific organization. This paper will evaluate the criteria of executive compensation and whether their pay is too high or not.
The truth of the matter is that executives’ pay is not on the extreme side as many may think. If the overpayment was true, employers could not pay them that much willingly. Of course, there are exceptions due to specific circumstances. However, the big question on focus here is whether executives as a whole category receive overpay. Simply stating that their pay is not too high does not address all the emotional intensity associated with its political, economic, and sociological dimensions related to the question. Employees that receive less payment in comparison to executives are obviously more likely to think that executives’ pay is too high (Schermerhorn, 2011). These people face a difficult time imagining that a person or job can be worth so much money.
Much of the inherent executive pay resentment especially in the healthcare sector is attributable to the fact that hospitals that are tax-exempt receive most of its payment from taxpayers. The opinion that colors this is that every individual has the right to health care services; hence nobody should get wealthy off them. In the political arena, the resentment takes the proposed limits form on executive pay and other rules. In some states, for instance, public hospitals’ executives cannot be paid more than a governor. In others, some legislators propose the limitation of executive pay in hospitals to reach the terms of average level payment of typical employees (Fuchita; et al. 2010). The labor market forces are responsible for executives’ pay, just as is the case with other employees. For instance, doctors receive a higher payment than nurses, since their jobs are different, representing a different labor market segment. This norm also applies in the case of executives getting higher payment than nurses and doctors.
A North American press released results of a comprehensive CEO compensation survey. The analysis consisted of around three thousand American companies and over two thousand CEOs. The top ten highest paid CEOs in the year 2013 earn more than one billion dollars every year. In addition, all the ten CEOs earned at least a hundred million dollars. The findings include that the payments increased with 8.47% median across more than 2200 CEOs (Ruel, 2013)
If the question on executives’ payment would be so simple to answer, then people would not criticize it as often as they do. The decision making dynamics on executive pay differ greatly from those of purchasing decisions. These dynamics lead organizations to pay more than what is in need. CEOs and boards do not allow cost to stand in the way of recruiting executives. They often decide on whom to hire first before discussing their pay. They sometimes admit that they may not afford to hire their first choice but strive to get the best to suit their organization.
Most executive pay discussions base on the assumption that all payments formulate through the labor market dynamics. This ignores the fact that many pay decisions affect incumbents’ payment and not external recruits pay. Employers give executives payment rise voluntarily every year.
They voluntarily advance their perquisites and benefits from time to time and even raise incentive opportunities at times for no coercing reason. Three primary factors that drive the current executive compensation are the intent to hire the most skilled person available for the job and the intent to pay adequately and competitively to retain incumbents. The third factor is the intent to offer a payment that is above average with the expectation of an above average performance. The intentions begin with the committee’s decision to hire highly experienced and exceptionally talented executives (Schermerhorn, 2011). People expect directors to make decisions that are in the corporation and shareholders’ best interests. In the case of a local unprofitable organization, it should be in the community's interests. However, in executive compensation determination, they seem to put the executives’ interests prior to the organization. Unless, the organization’s best interests are to retain morale in the executive suite and boardroom harmony.
As long the CEOs performance are pleasing to the directors, they tend to be generous with their compensation than CEOs are with their direct report’s payment. Most committees assent to whatever benefits or payments the CEO suggests for other executives. This is because they feel accustomed to pursuing the CEO’s leads in the majority of the areas. In addition, they regard payment decisions for other executives as the onus of the management and not the board’s. Directors often deem CEOs as a peer; hence committees find it hard to maintain a relationship of arm’s length with the CEO in the governance of the executive compensation.
Fuchita, Y., Herring, R. J., & Litan, R. E. (2010). After the Crash: The Future of Finance.
Washington: Brookings Institution Press and Nomura Institute of Capital Markets Research.
Ruel, G. (2013). GMI Ratings' 2013 CEO Pay Survey Reveals CEO Pay is still on the Rise. GMI
Press Release. Retrieved from
Schermerhorn, J. R. (2011). Exploring Management. Hoboken, N.J: Wiley.