Question

Use the Internet or the Strayer Library to research common components of executive compensation plans. Next, examine these components and identify one (1) component that you deem essential to motivate executives to lead companies toward competitive advantage. Provide support as to why you chose that component. Popular press and media accounts generally suggest that executives are overpaid. Discuss two (2) principles underlying the argument in favor of high executive compensations and determine whether these principles are sound. Provide examples to support your response.

Answer 1

answer-

The common element of executive compensation plans are-

1. Base pay
   Do your homework by talking to an executive recruiter in your industry and finding out what competitors similar in size to your company pay for the same position. Find out the expectations of the individual you’re hiring before putting a number forward. Think about what your company can truly afford. Consider the open market value of the person’s talent; if they are high profile in your industry, this will impact their expectations. Many companies include an annual cost-of-living adjustment as part of their base pay offer.
2. Benefits
   Tailor the benefit section of your executive compensation packages to meet the needs of those you’re hiring. For example, someone with a large family might prefer a robust health/dental/life insurance plan over extra vacation time. A younger executive might want a flexible health savings account and extra vacation time. Be open and flexible in structuring this area.
3. Short-term incentive compensation
   This might be in the form of stock options or cash; in most executive compensation packages, it is linked to some short-term, measurable objective that can be attained within a one-year time frame. Make sure these objectives are reasonable, important to the company, measurable and time-constrained so there is no uncertainty on the part of the company, the executive or the board of directors as to whether the goals have been achieved.
4. Long-term incentive compensation
   This is the most important part of executive compensation packages for most execs. Top executives look for a long-term compensation package that is generous and provides them with a powerful incentive to put in the long hours needed to make the company successful so they ultimately earn that long-term reward. For the company, this part of the compensation package should be structured as the “golden handcuff” to keep the executive from getting the itch to look elsewhere; a generous long-term incentive plan helps improve the chance for a stable and committed executive team. This compensation form is typically stock options with vesting requirements and/or performance objectives, or for private companies, the opportunity to earn an ownership position.
5. Executive perks
   You have to be a little careful with this category, given the media’s recent scrutiny over executive “sweeteners”. However, these special incentives can be the difference-maker for an executive who’s being pursued by multiple companies. Put on your creative thinking caps. What will be almost irresistible to this person? Maybe it’s a premium country club membership, access to the company plane, or a Paris apartment. Whatever it is, including it in the offer sends the message that you understand the person’s specific interests and have put a package together customized just for him or her. What executive wouldn’t be flattered?

The one component which motivate executives like CEO to lead company is executive perks because they are like icing on the cake which other employees do not get but CEO of the company can not work efficiently if these perks are not present.these perks helps to make CEO personal life more easy and luxurious which a executive wants.

Argument in favor-

One common misperception is that well-paid executives are “taking” money from employees. However, employees are paid according to the market and so are executives. A CEO’s pay is unrelated to employee pay. If the executive were to be paid less, those revenues would be redistributed among shareholders.

But paying a CEO less simply because their pay appears too high won’t benefit shareholders. One study found that companies paying their executives more outperformed those that artificially restricted pay, according to USA Today.

Critics of high executive pay may say that it’s not the amount so much as executives being paid no matter how well or how poorly the company does. But efforts to make pay based on performance are also often flawed. Take this example: An oil company paid its executives based on the success of the company. Of course, its success is highly dependent on the price of oil, a factor that the CEO has zero control over. In cases like these, the executive is paid more or less based on luck.