Why executive compensation is out of control - Essay Example

Executive compensation Executive compensation Executive compensation refers to financial and non-financial rewards that an executive of a company receives from the organization. They act as a way of gratitude to the executive for the work done. Executive compensation ranges from salary, bonuses, call options on stock and shares. The board of directors determines the amount of compensation received by an executive and forms a critical part of corporate governance in any organization (Reilly, 2010).

In the recent past there has been a tremendous increase in the amount of compensation that executives receive as compared to that of an ordinary worker. Many investors in the stock market all over the world believe that executive pay is running out of control. There is worrying trend especially in the United States where the annual salary of an average worker is the amount of money an executive receives in a day. Critics believe that executive bosses are not worth the amount of compensation they receive.

Despite falling stock shares in the market, executives still receive large amounts of compensation. Stock market investors believe this should not be happening since their performance does not correspond to earnings.At a moment where recession and unemployment is high in many countries, it does not make economic sense to have executive bosses receive such a large amount of compensation. The excess pay awarded to them should instead be invested in the public sector and this consequently shows how executive bosses have little concern about their countries and the citizens.

Economists believe that in order to clear the economic instability being experienced in the world currently, it is important that the pay of executives be tied to performance (Bebchuck, 2010).Most executive bosses control their board of directors hence they still manage to earn exaggerated compensation. The board of directors should however be able to control the compensation got by this executives and their compensation should be tied to performance instead of the power an executive has in the board.

This shows how corporate governance is continuously being under rated with a show of little economic sense when just a few people are left to joke around with investor’s interests.The fact that executive compensation is determined by market demand, most executives are continuously receiving an exaggerated compensation in comparison to an average worker. Critics believe that the market forces such as demand and supply should not entirely determine their compensation and it should however correspond o their performance.

Executive pay is getting out of control especially considering that these executives are using the taxpayer’s money to reward themselves an exemplary amount of compensation. Taxpayer’s money should be used efficiently and not to be used by a few people who care little about the rest (Essien, 2012).Executive compensation is continuously running out of control with failures being mistaken for talents. It does not make economic sense when the executives still get paid large amounts of money even when the company is bankrupt.

This adds up to corporate greed. Every nation should consider promoting social welfare of its citizens instead of corporate greed.I therefore conclude that executive bosses should equally be questioned about their performance. The amount of compensation that they get should correspond to their input in the company and they should be held liable whenever things go wrong in the company’s financial status.ReferencesTop of Form Bebchuk, L. SA. (2010). Pay without performance: The unfulfilled promise of executive compensation.

Cambridge, MA: Harvard University Press.Top of Form Reilly, D. J. (2010) New York University. & New York University Annual Conference on Employee benefits and executive compensation. New York University. Top of Form Essien, W. I. B. P. D. (2012). Strategic management. S.l.: Authorhouse. Bottom of Form