Question

What's a argument against current standards of executive pay in U.S. public companies. Be sure to comment on any relevance of the fact a firm is publicly listed on levels of executive pay.

Answer 1

There is huge pay gap between pay given to executive like CEO and pay given to the people who work for them. Below listed are few negative effects of such a system:

• This leads to income inequality. This not only results in large amount of money going to small group of people but also affects the pay structure throughout the organization and economy as a whole.
• High CEO pay does not mean high productivity. The high pay given to CEO does not gives a surety that they will generate higher profits for the firm.
• Weak corporate governance is a large part of the problem. It is evident that board of directors are more concerned with improving their positions than with advocating the best interests of the shareholders.
• Shareholders are not well positioned to hold corporate boards accountable. This can be understood with example. Suppose there are some shareholders who are actively spending resources and their is other group who is lazy and does not engage in active spending. The CEO pay will accrue not to the active group of shareholders, but instead to the lazier group of shareholders who do not spend resources. As a result the gains from the active group is muted.
• The excess money paid to CEO if saved can be passed to other group of employees like managers, senior managers and associates etc which will improve employee morale and will result in better performance.
• The excess money paid to CEO, if saved can be passed on to the shareholders in the form of increased returns and results in more satisfaction among shareholders.
• As per statistics CEO compensation has risen by 807 or 937 percent (depending on how it is measured—using stock options granted or stock options realized, respectively) from 1978 to 2016. At 937 percent, that rise is more than 70 percent faster than the rise in the stock market.” A typical worker’s annual compensation over the same period rose at the rate of 11.2%.