Remuneration of Chief Executives during Crisis Introduction During the recent global financial crisis many banks’ clients were faced with inevitable foreclosures. Such foreclosures also affected customers’ savings thus resulting in a terrible credit crunch…
In the U.S, for example, this was followed by acquisition of properties from defaulters. Despite a given financial situation, the banks’ chief executives have always enjoyed a constant pay through basic salaries and bonuses. Their positions have been secured by tenures and extensive pension plans. The banks have defended such payments as a way of protecting the interest of the bank by ensuring that they beat the competition for CEOs in the country. It is this unfounded huge salaries and allowances to CEOs despite financial situation, global or local, that needs to be reviewed. Such review should assist in ensuring that banks do not incur unnecessary expenditure when they should be recording increased investments and value for the shareholders. This paper will look into various ways that the remunerations of the chief executives of banks can be determined. In drawing up the analysis, various factors that add up to their pay such as pensions, office tenure, bonuses and gross salary will be looked into. Components to Be Monitored In determining the total remuneration of a CEO, various components should be given consideration. Such components are given priority owing to the fact that they motivate better performance by the CEO come the following financial year. They should also act to retain the person in office and within the bank to beat the market demand of such personnel. The components include salaries, bonuses, compensations, stock options and incentive plans. Salaries Like any other employee in a bank, the CEO is entitled to an annual or monthly based salary. Owing to the high number of companies willing to pay large sums for a given CEO, competition for such personnel has heightened considerably in many countries. Given a bank’s need for a well performing CEO, it is essential to ensure that a CEO is paid accordingly in an effort to retain them. Considering the constant nature of the salary, financial crisis should be given consideration when coming up with figures (CNN Money, 2013). For some banks like Citi bank in the United States, the CEO’s salary is determined and approved by the shareholders. This ensures that the figure protects the interests of the bank’s owners. Any increase or decrease should be given room in cases where either is deemed necessary. In an Annual General Meeting (AGM), the shareholders may approve to reduce or increase the CEO’s salary as an effort to protect the interests of the bank during crisis (New York Times, 2009). Bonuses CEOs are usually awarded bonuses based on their previous performances. In most of the banks, the bonuses are based on profits realised within a given year. Such bonuses act as motivation to the CEOs and incentive for better future performance. With bonuses, complexity arises when it is eminent that the following year will be faced with financial crisis. Bonuses are essential as they act as incentives to the CEOs although over a very short period. Such incentives are meant to ensure that the CEO performs better by increasing on the growth of the bank through increased profits and shareholder value. It is the same bonuses that have been misused by many CEO to increase their pay. CEOs may lie about the profits realised by presenting deceiving figures to the board. Such an action has seen banks award bonuses to CEOs based on misleading information. To save banks during financial crisis or within a period preceding the crisis, bank financial accounts should be properly audited to ensure that the ...
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