Justifying CEO Compensation
Introduction
One good issue to be discussed in the work environment is the issue of giving high salaries to CEO's or chief executive officers. Many chief executive officers in the United States receive as much as $700,000 million a year, regardless of the company's financial losses, and many employees are amazed if this big sum of money being received by CEO's are work-related or not. From this, a study was made by Crystal (1991) to critic CEO compensation. The author also made conclusions if the compensation is related to performance in general and pointed out differences in giving out compensations between the United States and other countries. This paper answers the questions on strategy implementation of CEO compensation, and other issues related to it. It also evaluates the arguments of CEO compensation, as reported by the article.
Body of the Paper
Effect on Strategy Implementation -- When chief executive officers receive high compensation, its adverse effects on strategy implementation are largely positive. This is somehow related to the fact that high compensation is connected to the performance of the company. If high compensation will be given to chief executive officers, then most likely, their performance will be better. CEO's can produce more substantial and effective strategies, in terms of office management and in production. Moreover, high compensation given to chief executive officers give more companies advantage in terms of attracting more competent workers, to lower costs by reducing turnover and increasing morale and efficiency (O'Donnell and Koontz, 1977, p. 215).
Merits of Various Recommendations -- One is reducing the costs of bankers, which would also reduce the costs of the companies in providing salaries to its employees. Another is to link CEO pay to long-term profitability, which would be beneficial to the whole company in terms of productivity and knowledge. Another recommendation is to assign stockholders and workers on boards of directors to avoid the issue of unequal wages of CEO's from others. This would prevent further turnovers and would improve their performance.
Non-regulatory Pressures -- One of these non-regulatory measures is to encourage more CEO's to participate in education, training and development, which would further improve their skills and knowledge regarding the system. This would compensate the high salaries received by CEO's as performing better than expected from the nature of their job. High salaries would serve as motivators in giving the company its edge among other companies. Another pressure is by giving them workload to match their high salaries. In this way, they could realize that they hold high responsibilities in the company, and that the company is not paying them high salaries for nothing.
Evaluation of Arguments -- O'Donnell and Koontz (1977) reports that most companies adopt the policy of paying competitive wages and salaries to attract the necessary personnel and to remain competitive (p. 215). From the examples given in the article, the companies mentioned were the large and high-earning companies in the United States, such as Walt Disney. From the job of the CEO, being responsible for inspirational leadership, passion for operational excellence, strategic vision, industry knowledge, team building, personal integrity and personal impact ("CEO Selection: Improving the Odds Using Science", 2005), the salary he or she receives can be justified, and can be understood, being excellent in maintaining subordinates and doing the quality of work in a large and prestigious company. I believe that the huge amount of money paid to CEO's are just enough for having such huge responsibilities in the company.
Not Through Legislation -- It was mentioned in the article that solving the problem through legislation would create more problems. Through legislation, the US Glass-Steagall Act of 1933 will be implemented, which restricts the amount of dollars the government could use and leads to the separation of the commercial and investment banks ("Glass-Steagall Act", 2006). This would somehow reduce the salaries of CEO's and in turn affect their performance and the company's productivity as well.
Conclusion
With the high salaries being received by chief executive officers in various companies, it can be deduced that the nature of their job is challenging and entails a lot of responsibilities. CEO's from high-earning companies deserve to be paid well from their jobs, as it is very evident that their performance compensates the salary that they receive from the company. This perhaps helps the company to generate more profit from the market, for they can clearly perceive their advantages from other companies from the performance of their employees.
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