The Compensation for Executives
Compensation package offered to the executives nowadays in the United States as well as other major industrialized countries has experienced a sustained rapid growth. A typical CEO's compensation package includes fixed salary, stock options, free use of company resources and usually, bonuses with tenuous link with performance. A new paper cited by the Economist (2005) reported that in 1997, the average American chief executive of the top firms in the United States took home £2.68m, while a typical counterpart in a British company earned £955,000. By 2003, the figure in Britain had risen 77% to £1.69m and that in the US to £2.83m. But take into consideration the relatively small scale of the British with mean (median) 1997 market capitalization of £2.2b (£420m) compared to £3.4b (£760m) in the Unite States (Conyon & Murphy, 2000), the CEOs in the UK are also well-paid. In recent years, the trend has drawn attention from both academic researchers and the general public, illustrated by the rapid growth of literature and critiques on the topic. What perplexes the public is that among the CEOs earning tremendous remuneration are ones of companies that are providing negative returns for their shareholders. In this article, several possible causes of the phenomenon will be demonstrated and possible consequences will be discussed as well.
Causes of the high remuneration level with weak pay-performance connection come from both internal corporate governance and external economic as well as social environment. Firstly, the increasing influence by the CEOs on the BOD over time is of course a big concern. Such cynical view of the executives also attested to Jensen and Murphy's (as cited in Cyert et al., 2002) finding that "arithmetic pay-perf ...