executive (over)compensation

Each year it seems executive compensation gets more inflated. Advocates argue that high compensation promotes competition for executive responsibilities and therefore encourages execs to perform at higher standards. Still though, a recent LA Times/Bloomberg poll stated that 80% of individuals in the study felt that CEOs are paid too much.

There are thousands of publicly traded corporations in America, and by no means does every CEO enjoy such high compensation, but many of those working for the top 500 companies do. Although the United States pays its CEOs more on average than any other country worldwide, some argue this correlates directly to our GDP, which according to the World Bank was $13,751,400 million, $6,654,729 million more than China at 2nd the highest ranking.

Money is a strong incentive, but history shows us that it’s potential to corrupt is infinite, and I would argue that to promote ethical business practice, the leaders in charge need to be motivated by social responsibility as well.

One push for accountability in compensation came in January 2007 when institutional investors nationwide proposed a resolution informally known as “Say on Pay”, which asked “more than 50 US companies to give stockholders an annual advisory vote on executive compensation packages” (Billitteri).

“Say on Pay” has been widely debated but has yet to achieve prominent presence in US business. Employees often make up a very large chunk of the shareholder body, and arguably know more about the management and future of their company than a board of directors who are not necessarily experienced with the specific company at hand. Employees are probably also more prone to increase   their own productivity if they have more of a say in the company’s strategic goals then if they feel they are only there to follow orders. Because of these two reasons, I feel that a “Say on Pay” approach is the most effective way of determining executive compensation for the modern corporation.

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