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Is CEO Compensation Directly Related to Performance - Term Paper Example

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Is CEO Compensation Directly Related to Performance

INTRODUCTION Executive or CEO pay is a financial compensation which is a combination of basic salary, bonuses or shares of the company stock etc. CEO pay is an important aspect for corporate governance and is determined by the company board of directors. PROBLEM STATEMENT Several theories have been designed for evaluating job performance and their relation with CEO pay structure. CEO compensations have been a subject of scrutiny for several years and through this paper I will evaluate whether or not CEO compensation is directly related to his/her performance. The financial breakdown faced by several companies has forced board of directors to design framework for assessing CEO’s performance and offer incentives accordingly. The board of directors employs methods for aligning the CEO’s actions with their company success and this can only be achieved through paying according to their performance. It happens as such that CEO fortune rise and fall with organization success or failure (Core J. R., 2002). RESEARCH QUESTIONS The first problem area will find out multiple determinants of CEO pay, including financial performance, CEO risk attitude, human resources and board structure. The second problem area will examine the pay strucutre of CEO across different organizations both private and public. The third problem area will present the response of corporate managers to the proxy statement disclosure rule based on a five year perfomance graph (Antle, 1986). LITERATURE REVIEW It is a proven fact

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the CEO’s job is the most stressful and difficult one to execute, as he/she is the individual who is responsible for the company’s strategic business position in the market. CEO is assigned with the task to collaborate with team members, board of directors and shareholders for safeguarding the company’s interest and for executing this they deserve a handsome amount of pay scale (Coughlin, 1985). CEO compensation varies from one company to another and is usually complicated which is more focused towards incentives, fringe benefits and perks as compared to the fixed pay scale. Performance can be measured in two ways either long-term performance or short-term performance which are linked with reasonable incentives for short-term performance and higher incentives for long-term performance. It is the duty of CEO to develop and implement strategies which can provide long-term benefits for the company and its shareholders (Finkelstein, 1998). The objective of this research is to provide an insight of the executive compensation by discussing the empirical and theoretical research on executive compensation. Due to the interdisciplinary literature, executive compensation has received attention from labor economists (Core J. a., 1999). Executive compensation entails opportunities for analyzing concepts related to labor economics, their productivity, promotions and incentives. Several theories are available for evaluating CEO compensation such as: Pay Performance Theories, Accounting based agency theories, corporate of earnings based agency theories, board capture based agency theories, management discretion based agency theories and social comparison based non-agency theories (Jensen, 1990). STRUCTURAL FRAMEWORK AND METHADOLOGY The variables associated with CEO compensation include Fixed Cash Salaries, Risk and

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IS CEO COMPENSATION DIRECTLY RELATED TO PERFORMANCE TABLE OF CONTENTS EXECUTIVE SUMMARY 4 INTRODUCTION 4 PROBLEM STATEMENT 4 RESEARCH QUESTIONS 5 LITERATURE REVIEW 5 STRUCTURAL FRAMEWORK AND METHADOLOGY 6 DATA COLLECTION METHODS 6 ANALYSIS OF FINDINGS 6 SUMMARY AND CONCLUSION 7 REFERENCES 8 EXECUTIVE SUMMARY It has been observed globally that organization pay their CEO’s competitive prices for aligning their organization performance…
Author : feestjamaal
Is CEO Compensation Directly Related to Performance essay example
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