Ceo Compensation

Powerful Essays
CEO Compensation As Murphy (1998) rightly points out, CEO compensation has become one of the most debated issues in the recent past. A lot of research in this field has been conducted to determine the relationship between CEO pay levels with the corporate performance, firm size, board vigilance, CEO’s human capital, tenure & age. But the results of these researches are not very hopeful and have yielded conflicting results. This review aims at understanding these relationships and also tries to provide an ethical perspective on CEO compensation.
CEO Pay Structure CEO compensation package comprises of four key components: base fixed salary, annual bonus, stock options & restricted stock grants, and long term incentive plan (Murphy, 1998). Matsumura and Shin (2005) in their research article have also mentioned a few other components of CEO compensation such as severance payments, tax reimbursements & signing bonuses. According to Matsumura and Shin (2005), base salaries for CEOs are most of the times determined by benchmarking the salaries of peer companies in the same industry. An annual bonus is paid on a specific year’s accounting performance, such as earnings per share or return on equity. In most of the companies CEOs are also provided a right to buy the firm’s shares at a pre specified exercise price for a pre specified term through stock options. Some firms also grant restricted shares which can be forfeited under some specific conditions. Many companies offer a long term incentive plan based on rolling-average three or five year cumulative performance.
Determinants of CEO Pay CEO compensation plays a key role in CEO motivation and can have a huge impact on firm’s activities and future direction (Hijazi & Bhatti, 2007). There are many factors that influence the CEO pay and a lot of research has been conducted in this regard. A few of the important factors that influence CEO Pay have been listed below along with the



References: Buccholtz, A. K., Young, M. N., & Powell, G. N. (1998). Are Board Members Pawns or Watchdogs? : The Link between CEO Pay and Firm Performance. Group & Organization Management. 6-26. Dudley, J. M. (2007). The New Executive Compensation Rule: The Tough Disclosures. Compensation & Benefits Review. 28-34. Harris, D., & Helfat, C. (1997). Specificity of Human Capital and Compensation. Strategic Management Journal. 18(11). 895-920. Hijazi, S. T., & Bhatti, K. K. (2007). Determinants of Executive Compensationand Its Impact on Organizational Performance. Compensation & Benefits Review. 58-68. Magnan, M., & Tebourbi, I. (2009). A Critical Analysis of Six Practices Underlying Executive Compensation Practices. Compensation & Benefits Review. 42-54. Matsumura, E. M., & Shin, J. Y. (2005). Corporate Governance Reform and CEO Compensation: Intended and Unintended Consequences. Journal of Business Ethics. 62(2). 101-113. Mel, P. (2003). An Ethical Perspective on CEO Compensation. Journal of Business Ethics. 48(4). 381-391. Murphy, K. J. (1998). Executive Pay. Center for Effective Organizations Publication. 1-91.

You May Also Find These Documents Helpful

  • Powerful Essays

    Ceo Compensation

    • 1998 Words
    • 8 Pages

    | CEO Compensation | | Introduction 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…

    • 1998 Words
    • 8 Pages
    Powerful Essays
  • Good Essays

    Ceo Compensation

    • 558 Words
    • 3 Pages

    Australian Pay Their CE0s more 1.0 Introduction High level of CEO pay has urged a strong argument on the pay‐setting process and the outcomes it produces. Statistic shows a dramatic rise in CEOs salaries in Australia over the past 10 years, estimation of annual salary is AU$83,287 –AU$323,051 (Chief Executive Officer Salary, 2012) . The purpose of this report is to determine whether Australian businesses should pay their CEOs more by analyzing the advantages and disadvantages that it could bring…

    • 558 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    Ceo Compensation Guide

    • 14830 Words
    • 60 Pages

    CEO Compensation Carola Frydman1 Dirk Jenter2 November 2010 1 Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02142; email: frydman@mit.edu Graduate School of Business, Stanford University, Stanford, California 94305; email: djenter@stanford.edu 2 Abstract This paper surveys the recent literature on CEO compensation. The rapid rise in CEO pay over the past 30 years has sparked an intense debate about the nature of the pay-setting process.…

    • 14830 Words
    • 60 Pages
    Powerful Essays
  • Good Essays

    debate is about whether or not CEOs deserve their multimillion dollar salaries. According to Kevin J Murphy (professor of finance and business economics), CEO compensation is justified because CEOs increase stock prices which, in turn, increases shareholder wealth. In contrast, Lisa H Newton (professor of philosophy) argues that CEO compensation is not justified due to the large disparity between CEO salaries and the salary of an average worker. She also argues that high CEO salaries "bad stewardship…

    • 538 Words
    • 3 Pages
    Good Essays
  • Good Essays

    level of CEO’s compensation and firms’ performance. Before the enactment of the Sarbanes-Oxley legislation (SOX thereafter), which regulates the unethical wrongdoings, CEOs enjoyed unreasonable high remuneration despite of their mediocre performance. The overall focus of this report is to identify the relationship between CEO’s compensation and performance of the company, and figure out whether the Sarbanes-Oxley legislation has an impact on it. Using a sample of CEO compensation and firm performance…

    • 889 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    journal is available at www.emeraldinsight.com/1475-7702.htm RAF 11,1 Do CEO compensation incentives affect firm innovation? Shahbaz Sheikh University of Western Ontario, London, Canada Abstract Purpose – The purpose of this paper is to examine if the structure and design of CEO compensation has any effect on firm innovation. It further investigates the effectiveness of each component of portfolio of compensation incentives in encouraging innovation. Design/methodology/approach – This study…

    • 18503 Words
    • 75 Pages
    Powerful Essays
  • Best Essays

    Ethical Dilemmas Facing Non-Profit Hospital CEO Compensation Ethical Dilemmas Facing Non-Profit Hospital CEO Compensation Executive Summary This essay deals with the unethical prevalence of excessive compensation packages granted to nonprofit hospital executives. Nonprofits are highly complex organizations and are vital to the community’s in which they serves. Therefore, it is essential for these organizations to appoint highly motivated individuals knowledgeable of the healthcare industry…

    • 3353 Words
    • 14 Pages
    Best Essays
  • Good Essays

    Compensation

    • 693 Words
    • 3 Pages

    FLORES, NASTASSJA NICOLE J. 2LM2 Compensation is a methodical approach to provide monetary value, financial return, tangible services and other benefits that the employees received as part of their employment relationship. There are 2 types of compensation that can be given to the employees; monetary and non-monetary. Monetary includes wages, salaries, bonuses, insurance plans, social assistance benefits and paid absences. Non-monetary involves meaningful and challenging works, recognition…

    • 693 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    compensation

    • 1643 Words
    • 6 Pages

    1) Briefly describe the company you researched, its compensation strategy, best practices they are applying, and compensation-related challenges they are facing. Marriott International, Inc.-formed in 1993 when Marriott Corporation split into two separate companies-is the world's leading lodging and contract services company. Marriott International has two operating groups: Marriott Lodging, which generates about 60 percent of company revenue, and the Marriott Service Group, its contract services…

    • 1643 Words
    • 6 Pages
    Powerful Essays
  • Good Essays

    Compensation

    • 900 Words
    • 3 Pages

    Compensation Most organizations have formulated a certain strategy regarding compensation policy and made the relevant necessary decisions in order to set the basis of payment, differentiate payment within a specific job, and pay above market rates similar to market compensation rates or below market compensation rates. These decisions which are important by those who manage compensation systems according to Milkovich, Broderick, (1989) are the following. Compensation's role is very important in…

    • 900 Words
    • 3 Pages
    Good Essays