The Importance Of CEO Remuneration

1812 Words4 Pages

A growing list of empirical literature has attempted to investigate whether CEOs remunerations are related to the size of the firm and their performance and if corporate governance mechanisms have any significant influence on CEO remuneration. Undoubtedly the most documented association in the Executive remuneration literature is the rapport between CEO pay and firm size. CEOs of big companies are paid more. This is normally justified by the complexity of jobs performed by executive officers of large firm (Murphy, 1999). Specifically, more recent studies such as Smith and Watts (1992) and Rosen (1982) argue that CEOs of big companies need talented and competent managers with capacity and experience to perform very complex tasks because they …show more content…

They showed that the composition of the board is an important factor in determining CEO pay. Specifically, their research proved that CEO remuneration decreases with ownership of the largest stockholder, increase in risk of bankruptcy and the board of director’s ownership, while it increases with the tenure of the CEO, the percentage of independent directors on the board and CEO ownership. But, their findings provide no statistical evidence that a large board leads to an overcompensation of the CEO, while the CEO pay is higher if the CEO is also the chairman of the board in the same firm. Their findings also remain unchanged after holding constant other determining factor of CEO remuneration, such as company size, accounting and market based performance metrics. Moreover, empirical evidence from Cyert, Kang and Kumar (2002) research established a negative link between CEO remuneration and the ownership of members’ remuneration committee i.e. expanding their ownership decreases CEO’ s equity and option remuneration by 4 to 5 …show more content…

On Contrary to expectations, using data collected from 193 manufacturing, transportation, minerals and financial services listed companies in the USA, Boyd (1994) found that the ratio of insiders was negatively associated with compensation of the CEO . Lambert et al. (1993) documents also a positive association between CEO remuneration and the proportion of independent directors on the board and the percentage of the board composed. However, Finkelstein and Hambrick (1989) - using a panel of data collected on the chief executives of companies listed under 'Leisure ' in the Forbes Annual Reports on American Industry, in the years 1971, 1976, 1982, and 1983 – found that CEO remuneration is not associated with the proportion of independent directors. Randoy and Nielsen (2002) investigated the association between CEO pay, corporate governance structures and firm performance within Sweden and Norway in 1998 using data collected from 120 Norwegian and 104 Swedish firms that are traded publicly. The statistical evidence established from cross-sectional data, indicates that there is a positive association between CEO remuneration and the size of the board, non-independent directors ownership and CEO remuneration, Company outstanding shares market value and CEO pay. However, they failed to establish CEO pay-performance association. Core et al (1999) have also carried out an

Show More
Related

  • Case Study: Nonprofit Executive Compensation

    798 Words  | 2 Pages

    Nonprofit executive compensation should be within a range that generously rewards the executive for meeting goals and a job well done while not taking away from the nonprofits ability to meet the needs that it serves. A good leader has not met the duties of the job if they spend extremely high amounts on travel and office supplies or personal equipment without fairly compensating their staff or while reducing benefits to the cause. When government funds are secured for a cause or people give to a charity, people often assume that the money is going directly to the cause. It is understandable that the charity has business expenses including staff compensation but there is something that doesn't feel right when you see leadership of the

    Read More

  • The Golden Parachute Option for CEO's

    1790 Words  | 4 Pages

    Imagine being in a world where people are paid in cash bonuses, stock options, or generous severance pay when fired from their job due to a company merger, are asked to leave, or choose to retire. This happens to be a reality for many CEO’s and top executives of companies. We live in an economy where mergers and take over’s have become common, and to allow this option for the highest paid employees of a company is arguably unfair. While researching golden parachutes, I formed questions due to the circumstances surrounding this executive option. For example, why should CEO’s, who live very comfortably, be given a compensation package for losing their position due to a company merger or retirement when employee and shareholder’s futures are at stake? Is it fair for the rich to get richer when numerous employees below top executives are dealt the same fate from a merger and shareholders’ investments are at risk but neither receive a form of additional compensation? Of course, there’re those who support the issuance of golden parachutes, arguing they can persuade a possible company merger to not take place due to the costs associated with a top executives golden parachute package. Another supporting point for golden parachutes is, they can make it easier for higher up executives, like CEO’s be absorbed into the future merged company. I will be addressing the point of whether CEO’s and other executives deserve to be awarded a Golden Parachute option by their company. As well as a brief background of Golden Parachutes and my stance on them. They’re a very important part of our growing economy and will always be considered in a merger/takeover if awarded to executives.

    Read More

  • Abortion Pros And Cons

    1598 Words  | 4 Pages

    Abortions have created many debates because it relates to ethical, moral, and legal issues throughout the world, because it is legal this topic is going viral. This issue leads to the question of the baby’s rights and the women’s rights. Abortion should NOT be legal anywhere because it not only takes away a human life, but can also affect your mental and emotional health, and it takes away a teenager’s/adult’s accountability.

    Read More

  • The Debate Over CEO Compensation

    1342 Words  | 3 Pages

    CEO compensation has been a heated debate for many years recently, and it can be argued that they are either overpaid or that there payment is justified by the amount of work they do and their performance. To answer the question about whether CEO compensation is justified it must be looked at by the utilitarian viewpoint where the good of many outweighs the good of one. It is true that many CEO’s are paid an exorbitant amount of money; however, their payment is justified by the amount of money that they bring back to the company and the shareholders. There are many factors that impact the pay that the CEO receives according to Shah et.al CEO compensation relies on more than just the performance of the CEO, there are a number of factors that play a rule in the compensation of the CEO including the fellow people who help govern the corporation (Board of Directors, Audit Committee), the size of the company, and the performance that the CEO accomplishes (2009). In this paper the focus will be on the performace aspect of the CEO.

    Read More

  • The WorldCom Accounting Scandal

    1587 Words  | 4 Pages

    Solomon, J (2013). Corporate Governance and Accountability. 4th ed. Sussex: John Wiley & Sons Ltd. p.7, p9, p10, p15, p58, p60, p253.

    Read More

  • Innovative Compensation Strategies at Holland Enterprises

    2348 Words  | 5 Pages

    Holland Enterprises is on an innovative planned trend, to invite and maintain the utmost talented employees and to decrease opportunity. The Human Resource Department had the responsibility that has initiated a winning team with a different compensation strategy. The compensation strategy contains of financial pay, and in thoughtful rights of imports and amenities. Holland Enterprise employer’s duties guarantee that their drivers recognize that they are motivation, they obtain the implements they want to be effective in their employment with Holland Enterprises. Their obligation founds an idea and marks accurate potentials.

    Read More

  • Company Law

    2007 Words  | 5 Pages

    It is concluded that neither of the above proposals are adequate in that any practical benefit that results from the proposal such as employee and shareholder engagement are outweighed by the theoretical impact of increasing the overlap of the organs which would alter the structure of company law. The legal side of directors’ remuneration appears to be sufficient with the directors’ duties legislation acting as an efficient preventative measure for the problems that directors’ remuneration creates. Furthermore, shareholders already must approve several payments as such this could be strengthened to tackle the issue and employees are to some extent taken care of within s172 as such it is these sections that need development rather than directors’ remuneration.

    Read More

  • Organizational Structure at General Electric

    1119 Words  | 3 Pages

    The General Electric Company (GE) is organized with its chief executive officer, shareowner, and board of directors on the top of the pyramid, followed by their executive leaders and corporate staff. GE’s Board of Directors ensures the company serves the interests of shareowners and other key stakeholders with the highest standards of integrity and compliance. Serving equally as tough critics and wise counselors, they provide in-depth oversight of the major strategic issues of the company (General Electric Company, 2012). The authority officially vested in the board of directors is assigned to a chief executive officer (CEO), who occupies the top of the organizational pyramid (Bateman & Snell, 2011). There chai...

    Read More

  • The Role of The Remuneration Committee

    1143 Words  | 3 Pages

    It is the responsibility of the remuneration committee to ensure that the report they create on the remuneration for board directors and senior executives is timely, accurate, complete, and simple to read, understand, and communicate. The committee should create an effective remuneration policy that is in line with the company’s long term strategy. This remuneration policy should then be applied consistently at all levels of employees throughout the company. The remuneration policy that is created should receive an approval from the board of directors and should also be held up for vote at the annual shareholders’ meeting. The policy should be amended as and when the need arises due to changing business circumstances.

    Read More

  • Board Of Directors Essay

    852 Words  | 2 Pages

    There are two types of board of directors. The first type called one- tier board system which used by British and American companies. This one- tier type depends on mix of outside and inside directors also called non-executive and executive directors. The main function of the board is to strategically plan and determine the business policy to achieve the companies’ main goals. Accordingly, the main management’s function is to implement what had been determined by the board of directors. All board members whether they are executive or non-executive board member are appointed by shareholders. The shareholders also have the authority to remove and re-assign any board member due to severe low performance or any critical

    Read More

  • Woolworth Performance Management

    761 Words  | 2 Pages

    Remuneration management is defined as the sum received for an employment or service delivered, this includes the money received on a monthly basis as well as benefits given as rewards (investopedia,para.1 ). Individualism need to be taken into account when implementing these remuneration structures or reward schemes, equal pay plays a role in balancing earnings among the diverse workforce (Shen, Chanda, D’Neetto and Monga,2009,p.241). The Woolworth’s Holdings uphold remuneration policies which have the purpose of making sure to attract and hold on to the best talent, that they are congruent with the strategies of the company and are the determinants of performance during the short and long phases. The policy considers the board members and the employees. This policy manages employees of the company by giving...

    Read More

  • The Marginal Productivity Theory of Wages in Explaining how Wages are Determined

    1719 Words  | 4 Pages

    The primary reason for the high pay given to the CEO may be to give

    Read More

  • The Importance Of Being A CEO

    754 Words  | 2 Pages

    For a lot of people, a dream job includes having a high salary, having a high status along with being famous so you can afford a big nice house, perhaps a car from a well-known brand and retiring at an early age. I Think that being a CEO includes those things but the most important thing for me is having a high salary. Why I think that is because I want to retire at an early age and I don’t want to work until I am 65 or 70 years old, I do also believe that with having a high salary along with a lot of money it also means you can be happy more often.

    Read More

  • The Importance Of Salary Position

    984 Words  | 2 Pages

    With the internet accessible to almost everyone, work seekers are furnished with more data than ever. Data can be acquired for employment opportunities, sets of expectations, and even salaries. Now and then when rounding out an application, a box will request what salary you desire. A few job advertisements actually request that you send your resume with salary necessities. These applications are some of the time very hard to decide what salary you desire and/or what is a fair salary for this position. How much does that employer typically pay? Is the employment candidate worth the top pay? Some fundamental ideas ought to be comprehended before attempting to negotiate your salary. To begin with, one must understand that a job in New York City

    Read More

  • Corporate Governance: What Is The Role Of Corporate Governance

    1017 Words  | 3 Pages

    Regulatory governing bodies include the Sarbanes-Oxley Act or 2002 (SOX), SEC, and guidelines of the stock exchanges like NASDAQ, etc. Also, court judgements from different states are important as US companies are registered in their respective states. There is clear separation between ownership and management to the extent that managers could run the affairs of the organization without any fear. The Board is a single tier structure which provides strategic direction to the organization with collective decisions by both Executive and Non-Executive directors. Independent director’s main role is to perform oversight of all activities of the Management board. On the other note, directors and responsible managers pay are tied with good performances along with stock options. There are some mechanisms created to factor the impact of these stock options on the P&L

    Read More

More about The Importance Of CEO Remuneration

Open Document