Executive Compensation: How Much Is Enough? an in Depth Look at the Rising Cost of Executive Compensation Compared to the Performance of the Firm

Article excerpt

ABSTRACT

This paper investigates the rising cost of executives in today's corporations. The principal findings show that the cost of an executive has risen and not always in accordance with the performance of the firm. This has been to numerous factors including varying the compensation packages and the tax benefits that corporations can obtain while granting the various forms of compensation. Furthermore, this paper investigates various companies and the manner in which the executives were paid in relation to their performance.

INTRODUCTION

In today's world of large businesses we have seen companies go out of business and hundreds of thousands of people lose their jobs. Investors have lost their life savings and retirement funds have been seriously hurt. With the spiraling down of retirement savings and stock prices, it appears the only people who haven't been affected have been the executives who run these businesses. We are now seeing executives making decisions that only help themselves and not the entire company, which is leading to a problem with shareholders buying into the huge compensation packages that are often awarded. Executives are under more pressure to deliver accurate and consistent numbers to the street, and, accordingly, being in the hot seat of corporate America is causing those executives to be rewarded in record amounts. This not only is a burden to corporations but might well drive incorrect and unethical behavior amongst executives whose pay is closely tied to the performance of the firm.

STATEMENT OF THE PROBLEM

The general problem in this study is to determine whether the compensation of executives is in line with the overall performance of the firm. Specifically: to compare salaries amongst executives in large corporations; to review aspects of the firm's performance; and to discuss the cost of these high price executives and their burden on firms.

Purpose of the study

The purpose of the study is to compare firm's performance with the level of compensation that executives receive. The study will also show that executives have not been doing what is in the best interest of the companies they control. They are not being paid for the results of the company. Whether a company does well or not should make a difference in the compensation of the people who run the company. The findings in this study will show the impact and burden on both the executive and the firm to commit to the numbers.

Sources, Scope and Limitations

Only US companies will be considered in our analysis. The information discussed in this study was obtained from multiple sources and all of the sources are from either academic journals or trade related newspapers. All journal articles used have been peer reviewed and published. The study will show that executive salaries and firm performance are not parallel. The paper will show the types of arrangements that top executives have and when the companies do not perform up to expectations nothing was done and no changes were made. Judgment will not be passed or opinions given on what amount an executive should be paid or how to judge the performance of an executive.

REPORT PREVIEW

The paper is organized in the following manner. The first part will analyze executive compensation packages, including stock options and other bonus features. A portion of the first section will discuss the golden parachute clause and investigate any tax havens that exist for nonmonetary compensation. The second part will then analyze company performance, other employee compensation and retirement plans. Finally, the two previous sections will be compared and a conclusion will be formed.

CEO COMPENSATION PACKAGES

Between 1990 and 2002 US CEO pay has risen 279%, far more than the 46% increase in worker pay, which was just 8 percent over inflation (Anderson, S., Cavanaugh, J., Hartman, C. …

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