Economics and Controversy over Executive Compensation Free Essay Example, 1500 words

The author accentuates that since the CEOs were entrusted so many key responsibilities, it would be unfair to criticize them when they received a bonus or high salary, more so when the company was doing very well. Money was the greatest factor in driving CEOs to attain higher levels of productivity. According to an HR analyst, "the performance of the US economy during the 1990s proved the fact that higher compensation motivated higher productivity, which in turn led to the all-round development of the economy" (Jensen, 1976, p. 26)Companies argued that high CEO compensation was also dependent on the market conditions of a particular industry. Several companies were willing to pay large compensation packages to attract the best CEOs in the industry. According to a study conducted by a research organization called Venture One, the competition for tapping the right executive talent had increased tremendously over the recent years. High compensation for CEOs was justified if they perfor med well and enabled the company to grow in spite of an economic downturn. Though the high compensation package for CEOs was justified by some companies and corporate board members, it was not welcomed by public investors and other stakeholders. We will write a custom essay sample on Economics and Controversy over Executive Compensation or any topic specifically for you Only $17.96 $11.86/pageorder now Some of them felt that such high compensation packages added to the company's burgeoning costs. They argued that these packages did not ensure loyalty or minimize the turnover of CEOs and top management. Highly-paid CEOs might as well quit the job as low paid CEOs would. They also felt that high compensation to CEOs need not necessarily lead to improved performance or ensure a steady increase in stock prices. In fact, it only served to increase the inequalities of income between the top executives and other employees of the organization. Critics of high CEO compensation argued that stock options were not effective in attracting the best of management talent or arresting the high CEO and top executives' turnover. They said, when a company was not performing well, the CEO's compensation should not be hiked.