High Executive Compensation: The Pros and Cons Analytical Essay by Nicky

High Executive Compensation: The Pros and Cons
An analysis of the arguments for and against high executive salaries.
# 148537 | 2,474 words | 13 sources | APA | 2011 | US
Published on Oct 27, 2011 in Business (Management)

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The paper considers the arguments against excessively high executive salaries that address the problem with options-based compensation, the myth with respect to the constricted nature of the CEO labor market, the failure of money to motivate, and the apparent lack of social justice that is bad for employee morale. The paper then considers the arguments that executive salaries are not too high; they are a small fraction of what the CEO is worth to the company's bottom line, executive talent must be well-compensated in order to be attracted and retained and a properly-constructed executive compensation plan will yield the desired results. The paper concludes by pointing out that ultimately, executive compensation only played a minor role in the current economic crisis.

Yes, Executive Salaries Are Too High
No, Executive Salaries Are Not Too High
Current Crisis

From the Paper:

"The problem with options-based compensation is that it does not satisfy its objectives. The intent is to resolve the agency problem but ultimately it only adds complexity to the agency problem. In many firms, executives have enough control over their compensation to build in some distance between their performance and their pay (Bebchuk & Fried, 2003). The objective is to align the interests of management with the interests of shareholders, but options and executive contracts are both finite. It is in the best interests, therefore, of the executive team to maximize value in the short-run, to the point of option expiry. As long as the options are in the money at expiry date, the executive will receive the compensation. This creates a short-term orientation for the executives."

Sample of Sources Used:

  • Taub, Stephen. (2006). CEO Pay is Too High, Directors Say. CNN. Retrieved May 1, 2009 from http://www.cfo.com/article.cfm/8027003/c_8027107
  • FASB Statement 123 (1995). Retrieved May 1, 2009 from http://www.fasb.org/st/summary/stsum123.shtml
  • FASB Statement 123R (2004). Retrieved May 1, 2009 from http://www.fasb.org/st/summary/stsum123r.shtml
  • Case: Compensation and Governance at WorldCom. (2002) NYU Stern. Retrieved May 1, 2009 from http://pages.stern.nyu.edu/~lcabral/teaching/worldcom.pdf
  • Khurana, Rakesh w/ Lagace, Martha. (2002). The Irrational Quest for Charismatic CEOs. Harvard Business School. Retrieved May 1, 2009 from http://hbswk.hbs.edu/item/3095.html

Cite this Analytical Essay:

APA Format

High Executive Compensation: The Pros and Cons (2011, October 27) Retrieved July 30, 2014, from http://www.academon.com/analytical-essay/high-executive-compensation-the-pros-and-cons-148537/

MLA Format

"High Executive Compensation: The Pros and Cons" 27 October 2011. Web. 30 July. 2014. <http://www.academon.com/analytical-essay/high-executive-compensation-the-pros-and-cons-148537/>