The battle over executive compensation and what it means for you.
Russ Banham, CFO Magazine
June 1, 2009
The battle over executive compensation and what it means for you. "This country was built on capitalism, on people wanting to better themselves, working long hours to achieve cherished dreams of success," says Marc Rosenblum, CFO of cosmetics company Clarins USA. "Unlike socialist societies, people could become rich if their companies became successful. We have to be very careful not to make this country a place where dreams can no longer be realized." And then the roof fell though we are back to barter? Where are we now? The CEOs have the huge bonuses and we are still hunting for the cheapest dress made in China and India? was that the idea of the Globalization or the World Trade? Read the above then you get the idea you do not need any more comment on this. I thank you Firozali A. Mulla
Posted by Firozali Mulla | July 02, 2009 10:13 am
What is the true value of the CEOs vision? What is a fair compensation package? Does it have to include salary, stock options, medical insurance, life insurance, cars, severance packages, and other perks not available to the hourly employee? The continuing escalation of executive pay while workers continue to experience diminishing real wages (through loss of purchasing power and benefit costs passed onto employees) will only serve to continue the embattled dialogue over what is equitable pay. Compensation schemes based upon outsourcing and off-shoring businesses overseas in search of lower costs leading to the loss of domestic jobs and lowering levels of competition can lead to higher consumer prices and higher profits, which can lead to higher compensation packages for executives. All of this in the name of global competition! Longnecker argues that only about 2% of companies have rewarded failure. However, even when the company does not attain it projected earnings and/or company growth estimates, executives still seem to receive rather handsome compensation. That is, they still are paid well. Unless a CEO and other top executives are willing to receive a compensation package based totally on performance, which may result in zero compensation for poor performance there will be no accord between the employee and the CEO who is still paid handsomely, both with salary and stock options when the company loses money. Another CEO compensation issue is the golden parachute. Why does the corporation pay the CEO and/or top executive when s/he is fired? When an employee is asked to leave or is fired, does the company pay him or her severance? Probably not! We not only need to be concerned about executive pay, but what about trust, ethics, and transparency within the executive suites. Nowhere is there a need for more transparency than in the board of directors compensation committee, which establishes the compensation packages. At this time there does not appear to be any public trust in publicly traded and/or private-equity corporations. There is a vital need for candid dialogue about what the free market is and what it means in order to regain credibility (integrity?). Now is the time to reexamine how business is done, both in the executive suite and in the boardroom. When reviewing financials statements issued by public corporations it seems that the board of directors, while appearing outwardly independent, only seems to serve each others personal interests. This is because so many CEOs sit on each other boards creating a sense that this type of business relationship resembles the appearance that I will scratch your back, if you scratch mine. Let us not forget that the directors have a fiduciary/stewardship responsibility to the shareholder/stakeholder to ensure and safeguard corporate assets against fraud, misappropriation, and misuse. This can only be done through maintaining an independent, arms-length relationship with the CEO who is responsible for the day-to-day operations of the company. Ironically, we have not even begun to discuss the impact of improper financing and accounting schemes on executive compensation and corporate greed. The truth is there is a need for a new set of rules. This can begin within our business schools through mandating courses on ethics, morals and other values-based practices that bring stewardship and humanity back into the upper echelons of the boardroom and executive suites. It is best that reform come from the business community or Washington will impose regulatory reform upon business through mechanisms that it believes will be fair and just, regardless of what the business community thinks. Mark Pochardt, M.A. MBA Candidate, 2010
Posted by Mark Pochardt | June 25, 2009 01:44 pm
I value hard effort and making the most of what we can do to live a better life. However, I feel that the richness of the "American Dream" is too narrowly defined by the comments in the article Fray On Pay which over emphasizes personal monetary profit. Historian and writer James Truslow Adams coined the phrase "American Dream" in his 1931 book Epic of America: ý The American Dream is that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement. It is a difficult dream for the European upper classes to interpret adequately, and too many of us ourselves have grown weary and mistrustful of it. It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position. ý If I were to define the American Dream I would say "it is about personal satisfaction, being able to stand on your own two feet, and living in a non-prejudice community that shares and supports these values". It is a great dream, and it is now shared by more than just Americans. With all visions it is important to reflect on it and continually assess if we are staying true to the path we have set. Martin Cuda Cambridge, Ontario, Canada
Posted by Martin Cuda | June 05, 2009 09:43 am
It is true that business executives work hard and are very well educated and highly trained. However front line workers also work hard. Science also shows front line workers are under more stress (http://www.pbs.org/stress/). On reason is executives make outrageous demands on an instantaneous whim such as 3 projects finished by tomorrow when the schedule was a week later thus forcing a worker to pull an all-nighter with little chance of success. And often a front line worker such as an engineer, scientist, accountant, etc. has as much or more education than executives. So the argument that executives work hard and are well educated just doesn't hold since there subordinates work just as hard, or harder, and have as much education, or more. Nobody argues that executive compensation should be greater than a front line worker. The problem arises in the degree of disparity. Nobody quibbled in the 1970s that the CEO earned 70 times the lowest paid worker in a company. Now that this ratio has increased to 250 to 700, people are quibbling. The middle class, which was the strength of the US, is shrinking partly because the upper class is hoarding wealth. As Dolly Madison said, "Money is like manure - it must be spread around to make young things grow." And as the Bible says, "A worker deserves his pay." Executives - don't be so greedy. Let your subordinates, who are truly earning their reward and making your company profitable, share equitably and monetarily in that profit.
Posted by Jim Sizemore | June 04, 2009 12:23 pm© CFO Publishing Corporation 2009. All rights reserved.