Executive pay

Freshman (College 1st year) ・Business ・MLA ・3 Sources

The establishment of businesses and organizations includes people (employees) to help carry out the different tasks of the corporation. Acquisition of employees depends largely on the level of qualifications, skills and expertise of individuals in different sectors, such as banking, management and customer service. Companies and associations have systems that bring people under various categories. For example, businesses have Chief Executive Officers, Managers, Head Offices, Office Managers and other staff. CEOs are the head of the business and maybe founders of the company or employees with an outstanding reputation and expertise in operating the company. However, compensation differs among employees and across different departments of the company with the CEO's getting the highest pay. The huge amount of money paid to this C-level individual can be very damaging to the various companies they are managing in both finance wise and morale.

In most cases, the structuring CEO pay around the performance of stock share price. The reliance on such as the basis of deciding on the CEO’s remuneration is very damaging to a company. First, the reliance on the stock performance of encourages the CEOs to focus on improving the performance of an organization in the stock market that is achievable without an actual improvement in profitability. Therefore, the CEOs may focus on improving the performance to enrich themselves. In the process, they may overlook the improvements needed in an organization leading financial difficulties and a demotivated workforce. The stock prices are affected by more factors rather than just the company performance. This means that the improved performance of an organization in the stock market may not be reflective of an improvement in the actual performance of an organization (Ehrenberg and Smith 376). Therefore, such payments may not conform to the profitability of an organization creating a financial burden, which may be detrimental to a firm over time.

Also, the CEO’s pay structures make it hard for the company to maintain work morale among employees. As stated before, Compensation differs among employees in any given company depending on the nature of work done. CEO’s receive the highest pay compared to other employees in the company, despite the latter group being responsible for the most works within an organization. The excessive compensation of the is a demoralizing for the employees, which may lead to losses in the long run due to low productivity (Whelton 19). For instance, a CEO’s salary can be three times what another employee is earning in another department of the company or equal to what they can earn in a lifetime. This can be very demoralizing to other employees considering the amount of work they do. Such encourages other employees to carry out their duties in a manner that is not productive to the company, hence leading to the low performance of the company.

Further, the CEO’s pay structure is damaging because of the incentive packages tied to the stock price and not long-term company performance (Murphy). CEO’s incentive packages are greatly dependent on the stock prices of the company. Upon good performance of the company, CEOs receive bonuses and other benefits in addition to their salaries. However, the incentive received by these individuals is highly dependent on the stock prices of the company. For instance, if the stock prices of the company fall, CEO’s lose chances of getting an incentive, and if the stock prices increase, they receive high bonuses and other benefits from the company as a motivator to continue working more for the company. However, this does not result in a long-term improvement in the performance of an organization. This is because the individuals undertake short-term measures to increase the company’s stock prices for them to continue enjoying the high incentive in the company. This is very damaging to the companies these individuals are managing because the company only grows in the short run and not in the long run.

However, the CEO’S pay structure is essential in the performance of a company. According to Leonard 109, the performance of a company is greatly determined by the efforts and the hard work of the CEOs to run the various activities of the company. Offering those high salaries and lucrative options motivates them to work harder to improve the performance of the company. However, tying their salaries to business performance and employee salaries will demotivate them to work harder or even quit their jobs for good-paying jobs with high lucrative options. Therefore, the pay structure enables the company to maintain hardworking and goal oriented individuals.

In conclusion, the CEO pay structure is damaging to companies and organization that make use of this structure. The pay encourages CEOs to work best in their interest rather than that of the company. For instance, individuals put in position various measures, which deter the growth of the company to enjoy high incentives that come along with their salaries. Such deters the growth and development of the company in the long run. Therefore, companies and organizations should avoid determining CEO compensation through stock prices to encourage individuals to work hard towards achieving the company’s goals.

Works Cited

Ehrenberg, R. G., & Smith, R. S. (2016). Modern labor economics: Theory and public policy. London: Routledge.
Murphy, Kevin J. "Executive compensation." Handbook of labor economics 3 (1999): 2485-2563.
Whelton, Russell S. "Effects of excessive CEO pay on US society." Saginaw Valley State University (2012).

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