disgruntlement that comes from employees knowing that the CEO is being paid a lot of money with such ratio of disparity, yet, they get pittance for all their work (Fischer, K., 2015). The arguments on both sides of the issue of executive compensation have been convincing as they possibly can be. Recent Developments
DISCUSSION BOARD FORUM 4 THREAD 4 Notwithstanding the mentioned arguments, the recent developments in the economy of the U.S, and other countries of the world since 2007 have reshaped the way the issue of executive compensation is now being viewed. Prior to the period of economic depression, the boards of major corporations granted lavish executive compensation to their corporations’ executives. Though, the compensation package of most CEOs were considered outrageous, such excessive pay have been influenced by two aspects of a company’s tone at the top – social ties between the CEO and members of the executive compensation committee, and the CEO’s reputation, particularly for financial reporting and disclosures (Kaplan, S., Samuels, J., & Cohen, J., 2015). Recent finding showed that some CEOs and their organizations’ boards of directors compromised the ideal check mechanism against excesses for mutual gains. However, these excesses had to be addressed by organizations’ boards themselves, and the regulatory efforts of the government. Recently, the US Congress passed the Dodd–Frank Wall Street Reform and Consumer Protection Act partly in response to allegations that CEO pay is ‘‘excessive.’’ Through the ‘say- on-pay’ provision in the Act, publicly traded companies are now required to disclose what their five top executives are paid, and state the rationale for such compensation (Kaplan, et al). The Act also requires public companies to hold shareholder votes on executive compensation once every three years. With the need to stay on top the situations of the affairs of their organizations, many of them are now voluntarily doing so every year, in order to forestall the type of unethical practice perpetrated at WorldCom, Merrill Lynch, and Enron. Mid-way advocates, judging from the realities of our economic realities, have advocated that executive compensation should be tied to organizational performance drawn over a certain
DISCUSSION BOARD FORUM 4 THREAD 5 period of time. This approach was thought to tie an increased portion of executive compensation to long-term performance as measured by total shareholder return or to performance metrics that drive shareholder return. Though there is an opposing view that such measure stifles the liberty that goes with the interplay of a free market economy. This approach has however led to an increasingly higher compensation for the top executives. This happens when share prices appreciates and therefore results in seemingly more gain to the CEOs.
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- Summer '14