...Street movement in 2011. A significant portion of the outrage was centered on topics such as Executive Compensation and it’s disparity to the average workers wage. Critics of the executive compensation structure wonder how well the current system of paying executives is working and if it could be improved. Many questions are raised as to how much compensation was adequate and the corresponding effects on the organization. The Board of Directors of many organizations is under direct scrutiny for their role in determining executive compensation policies. In theory, through the electoral process of public companies, shareholder interests should perfectly align with management, although this is not always the case. Shareholders elect the Board of Directors, who in turn, acting as agents of the shareholders, elects the officers. A compensation committee is formed to develop compensation packages that encourage officers to reach the goals and expectations of the shareholders. However, executive compensation policies are often quite complex and this electoral process can fail to meet its objective. By the 1980’s, these packages were weighted heavily by incentives including company stock, stock options, and cash. Due to complexity and lack of experience, some compensation committees may have been unprepared to make informed decisions about executive pay (Smith). Compensation committees must have a diverse skillset as well as include a financial expert with an extensive...
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...An Assessment of Executive Compensation in Switzerland With Reference to Referendum in March 2013 on Executive Pay Adamu Yushau Usumanu adamuusumanu@gmail.com This Paper is Submitted in Partial Fulfillment of the requirement for Corporate Finance and Governance course SMC University School of Management Dr. Albert Widman January 29 , 2014 Abstract The citizens of Switzerland in March 2013, decided in a referendum that shareholders must determine Board Member, Chairmen and Executive pay. They also decided to restrict proxy voting and ban severance pay, bonuses, for the purchase and sale of companies. In addition, loans pensions, and remuneration in he form of stocks or profit sharing must be regulated by the bylaws of the company, and finally, individual board members, and chairmen be elected by shareholder every year and banned corporate proxy and the representation of shareholders by depository bank. Key Words: Corporate Governance, Executive Compensation, Referendum, Board Introduction The executive compensation (executive pay) is composed of the financial compensation and other non-financial awards received by an executive of a firm. It is a mixture of salary, bonuses, shares of and/or call option on the company stock, benefits, and perquisites, ideally configured to take into account government regulation, tax law, the desires of...
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...Name Institution Date Introduction Compensation in the organization takes a large share of costs in an organization. The compensation should be addressed from a strategic level since it constitutes the most important expense for any organization. In the long term, the organizational productivity and performance is influenced by the compensation system, and whether the system is effectively used. An adequate compensation in an organization can turn the unproductive employees and change the productivity in the organization. When the management uses the compensation as the subject of the performance, it facilitates into bringing out the best performance from the contribution of the employees (Brown et al.). The process of compensation in an organization based on the employee’s performance helps to increase the employee performance and motivate teamwork in the organization. The type of compensation differs with the type of organization, and the expected results against the individual employee’s contribution. The competitive organizations have compensation plans and systems and plans which are either written or not written that meet the organizational requirements. The compensation system enables organizations to achieve different goals such as attracting high quality employees, to retain the hardworking employees, or to motivate employees. All these are done to enable the employees add effort to achieve the organizational goals. Compensation plans differ with the goals and the...
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...Executive Pay Strategic Issues and Problems: As a result of the current economic crises, many companies are experiencing massive financial losses. These companies are reducing salaries and cutting peoples’ jobs while executives are maintaining high compensations. Using tax payer’s money, the US Government is assisting these financially struggling companies through the Troubled Asset Relief Program (TARP). TARP was created to assist these companies to ultimately allow them to survive and prevent massive job loss. Tax payers are concerned about executives receiving a high and unjust compensation in comparison to other non-executives whom are suffering from layoffs and compensation cuts. Executive compensation is controlled by the companies’ boards that in turn work under the Chief Executives. The US Government is intervening by proposing plans to regulate the compensation of executives in these financially stressed companies. Evaluation and Analysis: Compensation of executives is not regulated or monitored effectively. Executives have the ability to use deceptive and manipulative practices to achieve higher unjust compensations. Boards justify the high compensations as rewarding performance, which is contradicting considering the financial status of these companies. People are becoming outraged as many are losing their jobs and are receiving salary reductions while executives are still making millions. The US government is imposing executive compensation regulations to...
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...Executive Compensation: The Ethical and Impact Challenge Executive Compensation: The Ethical and Impact Challenge Executive compensation is defined as the reward given to corporate executive employees for their job performance. Corporate executive employees are the higher echelon company employees and may include the chief financial officers, chief executive officer, upper level managers and the company president. Executive compensation mostly consists of base salary, bonuses, long-term incentives benefits, and prerequisites whose main purpose is to motivate the executives to steer the company to profitability and make decisions with the best interest of the organization. Executive compensation has been on an upward rise especially within the last few decades reaching to unprecedented levels. Worse still, executive employees’ salaries and benefits have increased at a significantly higher rate as compared to other employee’s compensation consequently raising controversy not only of the ethical issues but on issues of equity and efficacy of the high compensation in motivating the executive’s performance. The paper thus posits that the increased executive salaries are not only unethical but are not a reflection of executive performance nor are they correlated to executives performance and as such other options of motivating...
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...------------------------------------------------- MASTER IN BUSINESS ADMINISTRATION ------------------------------------------------- (GENERAL MANAGEMENT) ------------------------------------------------- ------------------------------------------------- MGT6033: COMPENSATION & BENEFITS MANAGEMENT ------------------------------------------------- ------------------------------------------------- COURSEWORK / ASSIGNMENT I ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- Prepared By: Lim Chee Seong (IC: 661007-08-6109) ------------------------------------------------- (Student ID: PACE 024747) ------------------------------------------------- ------------------------------------------------- Lecturer: Dr. Perema Kumari S Ponnampalam ------------------------------------------------- ------------------------------------------------- a) Compensation management as one of the important link to the human resource management, has greatly...
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...Journal of Economic Perspectives—Volume 17, Number 3—Summer 2003—Pages 71–92 Executive Compensation as an Agency Problem Lucian Arye Bebchuk and Jesse M. Fried E xecutive compensation has long attracted a great deal of attention from financial economists. Indeed, the increase in academic papers on the subject of CEO compensation during the 1990s seems to have outpaced even the remarkable increase in CEO pay itself during this period (Murphy, 1999). Much research has focused on how executive compensation schemes can help alleviate the agency problem in publicly traded companies. To understand adequately the landscape of executive compensation, however, one must recognize that the design of compensation arrangements is also partly a product of this same agency problem. Alternative Approaches to Executive Compensation Our focus in this paper is on publicly traded companies without a controlling shareholder. When ownership and management are separated in this way, managers might have substantial power. This recognition goes back, of course, to Berle and Means (1932, p. 139) who observed that top corporate executives, “while in office, have almost complete discretion in management.” Since Jensen and Meckling (1976), the problem of managerial power and discretion has been analyzed in modern finance as an “agency problem.” Managers may use their discretion to benefit themselves personally in a variety y Lucian Arye Bebchuk is the William J. Friedman Professor...
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...Seattle, Washington January 26, 2012 Dear Shareholders: You are cordially invited to attend the Starbucks Corporation 2012 Annual Meeting of Shareholders on March 21, 2012 at 10:00 a.m. (Pacific Time). The meeting will be held at Marion Oliver McCaw Hall at the Seattle Center, located on Mercer Street, between Third and Fourth Avenues, in Seattle, Washington. Directions to McCaw Hall and transportation information appear on the back cover of the notice of annual meeting and proxy statement. Under the Securities and Exchange Commission rules that allow companies to furnish proxy materials to shareholders over the Internet, Starbucks has elected to deliver our proxy materials to the majority of our shareholders over the Internet. This delivery process allows us to provide shareholders with the information they need, while at the same time conserving natural resources and lowering the cost of delivery. On January 26, 2012, we mailed to our shareholders a Notice of Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to access our proxy statement for our 2012 Annual Meeting of Shareholders and fiscal 2011 annual report to shareholders. The Notice also provides instructions on how to vote online or by telephone and includes instructions on how to receive a paper copy of the proxy materials by mail. The Notice will serve as an admission ticket for one shareholder to attend the 2012 Annual Meeting of Shareholders. On January 26, 2012, we also first...
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...Q1 Explain the importance of compensation management and detail how organization handle its complexities? Ans1 Compensation and reward system plays vital role in a business organization.since, among four Ms, i.e. men, material, machine and money, men has been most important factor, it is impossible to imagine a business process without men. Every factor contributes to the process without men. Every factor contributes to the process of production/business. It expects return from the business process such as rent is the return expected by the landlord, capitalist expects interest and organizer i.e. entrepreneur expects profits. Similarly the labourexpects wages from the process. Labor plays vital role in bringing about the process of production /business in motion. The other factors being human, has expectations, emotions, ambitions and egos. Labor therefore expects to have fair share in the business/production process. Therefore a fair compensation system is a must for every business organization. The fair compensation system will help in the following: 1) An ideal compensation system will have positive impact on the efficiency and results produced by employees. It will encourage the employees to perform better and achieve the standards fixed. 2) It will enhance the process of job evaluation. It will also help in setting up an ideal job evaluation and the set standards would be more realistic and achievable. 3) Such a system should be well defined and uniform...
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...To what extent does executive pay influence company performance? There has been widespread controversy in recent years about the amount of compensation CEO’s receive. CEO’s financial compensation packages were largely structured to incentivize risk taking in order to increase shareholder wealth (“Restraints on Executive Pay”, 2009). Yet, the 2008 financial crisis was mostly characterized by declining levels of company performance largely due to the increase of risk afforded to CEO’s by the attractiveness of lucrative executive incentives to perform. This essay argues that executive pay and its influence on company performance is both controversial and complex and concludes that executive pay has minimal influence on company performance and, when it does have influence, it tends to be negative. It is widely believed that companies and their shareholders suffer from poor performance unless the importance of incentives for executives – most notably through monetary and stock compensation – is realized (Jensen and Murphy 1990). The notion that the level and performance sensitivity of pay affects the quality of managers an organization can attract in a competitive labor market for executives seems, on the surface, uncontroversial. However, whether compensation policy is truly “one of the most important factors in an organization’s success” (p.139), as Jensen and Murphy (1990) assert needs further examination A series of empirical studies from a variety of industry, national...
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...CEO & Enterprise Internal Pay Equity Multiplier & Optimal Management Structure Analysis Compensation Standards.com October 2007 Steve Hennigan, CPA Board Chair CPS Energy Mark Van Clieaf MVC Associates International Consultants In Organization Design, Leadership & Shareholder Value www.mvcinternational.com Mark@mvcinternational.com Tampa • Houston • Toronto • London Copyright © 2007, MVC Associates International M3202.1 1 Original Internal Pay Equity Research Felt Fair Pay - “FFP” = 2 X • 13 research studies over 15 years with 1000+ managers from CEO to front line in USA, Canada, UK (see MVC Associates International published articles) • Differential Work justifies Differential Pay & data shows a consistent Felt Fair Pay multiplier / differential • Each TRUE differential Level of Work (see Appendix) was identified as worth 2X more in Total Direct Compensation than the level directly below it • MVC Associates has effectively applied 2X to 2.5X differential to its 5 Levels of CEO Work analysis for clients worldwide Copyright © 2004, MVC Associates International – slide 1 M3202.2 2 Jeff Immelt, CEO of GE Validates 2X to 3X CEO Pay Differential as Felt Fair Pay - FFP • Winter Issue of Compensation Standards: “CEO role should be paid within a small range of the top 20+ executive team members” • Immelt points out that his pay is within 2 to 3 times his top executive team members Copyright © 2007, MVC Associates International – slide 2 M3202.3 3 ...
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...Journal of Business Ethics (2009) 85:147–156 DOI 10.1007/s10551-008-9934-6 Ó Springer 2008 What’s Wrong with Executive Compensation? Jared D. Harris ABSTRACT. I broadly explore the question by examining several common criticisms of CEO pay through both philosophical and empirical lenses. While some criticisms appear to be unfounded, the analysis shows not only that current compensation practices are problematic both from the standpoint of distributive justice and fairness, but also that incentive pay ultimately exacerbates the very agency problem it is purported to solve. KEY WORDS: executive compensation, distributive justice, pay disparity, incentive alignment Introduction Few academic theories have been adopted as widely as the application of agency theory (Jensen and Meckling, 1976) to the structure of executive pay in modern corporations. After prominent suggestions that the inherent conflict of interest that exists between stockholders and corporate managers – or ‘agency problem’ – could be mitigated through the structure of managerial incentives (e.g., Jensen and Murphy, 1990a), the prevalence and size of stock option grants to senior executives have expanded increasingly and substantially (Hall and Murphy, Jared D. Harris, Assistant Professor teaches both Ethics and Strategy courses in Darden’s MBA program, and a doctoral seminar on corporate governance and ethics. His research centers on the interplay between ethics and strategy, with a particular focus...
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...Compensation and Reward Management UNIT 17 COMPENSATION STRATEGY, STRUCTURE, COMPOSITION Objectives After reading this unit, you should be able to: l appreciate compensation function and objectives; l analyse compensation issues and trends; l assess the characteristics of executive compensation and its determinants; l understand the principles and practices of compensation administration; and l identify the major components of wage structure in India. Structure 17.1 Introduction 17.2 Compensation Issues 17.3 Compensation Function 17.4 Compensation Policies and Objectives 17.5 Compensation Administration 17.6 Compensation Determinants 17.7 Compensation Survey 17.8 Compensation Structure 17.9 Job Evaluation System 17.10 Pay Equity 17.11 Executive Compensation 17.12 Compensation Trends 17.13 Wage Structure in India 17.14 Case Study 17.15 Summary 17.16 Self-Assessment Questions 17.17 Further Readings 17.1 22 INTRODUCTION One of the most difficult functions of human resource management is that of determining the rates of monetary compensation. It is not only complex, but significant both to the organisation and employees. Employee compensation decisions are crucial for the success of an organisation. From a cost perspective alone, effective management of employee compensation is critical because of the total operating costs. Another...
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...Approved by the Board September 2012 BEST BUY CO., INC. COMPENSATION AND HUMAN RESOURCES COMMITTEE CHARTER Purpose The Compensation and Human Resources Committee (“Committee”) of Best Buy Co., Inc. (“Company”) is appointed by the Board of Directors (“Board”) to discharge the Board’s responsibilities relating to Executive Officer and Board member compensation, including the establishment of the Company’s executive and director compensation philosophies, preparation of a report as required by the Securities and Exchange Commission (“SEC”) to be included in the Company’s annual proxy statement and evaluation of the Company’s Chief Executive Officer (“CEO”). The Committee is also appointed to oversee the development and evaluation of, and to approve, equity-based and other incentive compensation and to oversee the Company’s human capital policies and programs. Committee Membership The Committee will be composed of at least three directors each of whom are independent as defined by the New York Stock Exchange listing standards. All Committee members will also be “non-employee” directors as defined by Rule 16b-3 under the Securities Exchange Act of 1934 and “outside directors” as defined by Section 162(m) of the Internal Revenue Code. The Committee members and Chairperson will be appointed by the Board pursuant to the recommendations of the nominating committee of the Board and may be removed by the Board in its discretion. The Committee will have authority to...
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...Summary Elements of Executive compensation package The information below is taken from proxy circular- fiscal 2013. Main components of the executive compensation are: base salary; annual incentive; long-term incentive; retirement savings; and other compensation. The purpose of each of these elements is given below: Base salary (annual fixed): this compensation provides to executive officers for their everyday services and reflects their role within the company, personal performance, experiences and contribution to the company. Annual Incentive (variable): for an individual executive, this award depends upon their overall company performance and individual goal set for the fiscal year. Long-term incentives (variable): awards paid in the stock options and/or RSU (restricted share units). The purpose of this award is to give executives a longer-term interest in the success of the company. Apparently, this reduces the influence to engage in the opportunistic behavior and motivates them to create and maintains the shareholders values. Retirement saving (long-run): This element supports Executive Officers in saving for their retirement and Company matching program made available to all employees of the Company. Other Compensation (Short & Long-Term): These programs are designed for the health and wellness of all employees. This program is same for companies al employees including executive officers. Cost Optimization and Resource Efficiency (“CORE”) program: In March...
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