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This paper explains that, according to the classical economic theory of employee pay including the Chief Executive Officer (CEO), an employer should pay its employees such that the marginal cost equals marginal productivity; however, contrary to this theory of fair pay, CEO salaries have been growing much faster than the average worker's pay and thus the productivity of many companies may not be matching that of the increases of pay of the CEO. The author states that the argument for large salaries for CEOs is that CEOs' actions influence a large number of people; thus their pay is in line with the stress, responsibilities, their wealth of real life and academic education, their experience and the implications of their actions. The paper concludes that, when a CEO salary plan slants heavily to stock options and bonuses, which are based on company performance, executives will be encouraged to work hard; however, simply conferring inflated salaries and bonuses do little to benefit the long-term future of the company and make little economic sense.
From the Paper:"However, despite the distaste for unethical actions on the part of CEOs, the illegal behavior upon the part of prominent CEOs at Martha Stewart Omni media and Tyco should not be confused with the issue of legitimate, if over-inflated executive pay or even the overgenerous bestowing of perks upon CEOs of other corporate entities. Most companies have rules regarding the reporting of perks. For example, when Robert J. Genader was promoted to chief executive of AFG, (Ambac Financial Group) last year, "he received a $100,000 raise in his salary, to $525,000. But he did not use the extra money to cover the $40,000 initiation fee at a club he joined (but has not identified). Ambac shareholders paid for that, as well as $11,637 in membership fees, according to the company proxy." "
Cite this Essay:
Executive Pay (2006, July 14) Retrieved January 18, 2021, from https://www.academon.com/essay/executive-pay-67700/
"Executive Pay" 14 July 2006. Web. 18 January. 2021. <https://www.academon.com/essay/executive-pay-67700/>