The 21st Century Executive: Innovative Practices for Building Leadership at the Top

By Rob Silzer | Go to book overview

Rewarding Executives

Marianna Makri, Luis Gomez-Mejia

Executive compensation has proven controversial because of the widely held belief that executives are grossly overpaid. Some view the continuing explosion in the pay of top executives—at the expense of shareholders and workers—as obscene, arrogant, and selfserving. For example, Kennedy-Wilson—an international real estate firm—paid its chairman and chief executive, William McMorrow, $3.7 million in 1999, a year when the company's net income was only $5.6 million! (Moore, 2000). Others, however, counter that executives are rightfully compensated for the increase in growth and innovativeness of American businesses over the last decade. They contend that with businesses booming, some of the results may need to be credited to the abilities of their leaders, beyond just pure luck.

A Mercer study (Lublin, 2000), based on the latest proxy statements from 350 major U.S. companies, indicated an upward trend in top executive salary as well as bonuses. Specifically, in 2000 the highest executive's median salary and bonus climbed to $1,688,088. Looking at the trend in total pay during the past decade, executives in the year 1999 got paid, on average, 442 percent more than their colleagues did in 1990 (Reingold & Grover, 1999). During the same period, the wages of non-exempt employees increased an average of just 34 percent (Gomez-Mejia, Balkin, & Cardy, 2001). The disparity in pay between those at the top of the corporate ladder and those at the bottom is increasing. For instance, while in

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