Home About IUP Magazines Journals Books Amicus Archives
     
A Guided Tour | Recommend | Links | Subscriber Services | Feedback | Subscribe Online
 
HRM Review Magazine:
The CEO Compensation Controversy
:
:
:
:
:
:
:
:
:
 
 
 
 
 
 
 

CEOs should be compensated 15 times more than the lowest-paid salary of an employee in a company. I am against mandating a ratio, but it can be anything from 15 to 25 times the lowest salary.

The owners and managers of a company shared a principal-agent relationship. In the beginning, there was a conflict between the two as to who should own the corporate resources of the company. To solve this issue, the owners devised a `compensation package' for the managers. This package was thought to be a way of achieving harmony between the managers and the owners of a company. CEO compensation was the compensation package given to the CEO, to manage the company's corporate resources effectively. The primary components of a compensation package included the salary, bonus and stock options4. In some cases, it also included retirement benefits5, incentive plans6 and gains from stock grants7.

The CEO compensation structure evolved over the years as a result of committees set up to legitimize CEO compensation packages. Till the early 1980s, CEO compensation was not linked to the company's performance. It was viewed only as an administrative function. The CEO's salary was fixed, depending on the company's economic state during that time and the CEO's professional experience in terms of the number of years. Salaries were standardized, and very few top executives and CEOs received major incentives for outstanding performance.

The high inflation rates in the mid-1980s forced the compensation committees to raise the salaries of top executives and CEOs. During this period, the compensation package was linked to the economic performance of the company in terms of profits, revenues and growth. It was thought that linking compensation to the performance of the company would enable CEOs to focus more on maximizing shareholders' wealth.

 
 

Motivation, Organizational Development, Organizational Behavior, Recruitment & Staffing, Training and Development, Strategic HR, Industrial Relations, Career Counseling, Technology, CEO, compensated, lowest-paid salary, employee,terms of profits, revenues and growth.

 
 
.