Recently CEO compensation packages have high rocketed making many people question the validity of their compensation. Many questions have been risen to find out if CEO compensation if excessive. Through this paper we will discuss why we feel CEOs in America are grossly overpaid. We will start off by talking about the ethics on the matter and then the pay-performance connection within organizations. We will also touch on the real wages of employees and how America compares to international companies. We will finish our argument with some recommendations that we feel will help make organizations as a whole better.
High Pay, Low Performance
It is shown in several studies that high CEO pay is linked to low company performance. In the article, “Chief Executive Compensation: An Empirical Study of Fat Cat CEOs,” by Kuo and Wang they describe the connection between CEO compensation and the financial crisis in 2008. As stated in the article, “the incentives built into the compensation plans of many financial firms are one of the fundamental causes of the financial crisis and surprisingly receives little public attention”. They go on to say, “Top executives of large banks or investment banks have encouraged the excessive risk-taking by top managers, leading to the financial crisis.” Kuo and Wang also explain how the incentives of executives are link to the short-term performance of securities that are traded. This sort of behavior is not in the stakeholders’ best interest. The CEOs in this case are clearly not interested in what is best for the company, but merely looking out for themselves. Instead of focusing on long-term competitive advantages and achievements, the CEOs are looking to make a quick buck for themselves. Another resource we used was that of Lucian Bebchuk and Jesse Fried. They have a very similar take on the topic, by also stating that trading securities was the beginning to the financial
Cited: Lin, D., Kuo, H., & Wang, L. (2013). Chief Executive Compensation: An Empirical Study of Fat Cat CEOs.International Journal Of Business And Finance Research, 7(2), 27-42 Bebchuk, Lucian A., and Jesse M. Fried. Pay without Performance: The Unfulfilled Promise of Executive Compensation. Cambridge, MA: Harvard UP, 2004. Print. Kay, Ira T., and Putten Steven. Van. Myths and Realities of Executive Pay. New York: Cambridge UP, 2007. Print. Crystal, Graef S. In Search of Excess: The Overcompensation of American Executives. New York: Norton, 1991. Print.