executive compensation | Course Paper

EXECUTIVE COMPENSATION

Executive Compensation

Overview & Current Context

Ron Brown

California State University, Monterey Bay

BUS 601-Business Communications Fundamentals

Professor Karen Wisdom, M.A.

August 10, 2018

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Executive Summary

Executive compensation is a problem that has recently become a

mainstream topic in the business and political communities. Articles written by experts on sites

such as EPI.org and aspeninstitute.org have sparked nationwide interest in the issue of executive

compensation levels and the widening gap between executive compensation and that of the

average wage earner. Several factors are examined that may or may not contribute to the

problem. First, the typical executive compensation package consists of 10 percent base salary

and 90 percent of various stocks and incentives. However, it is the structure of these incentives

that causes the problem. Short-term incentives and unrestricted stocks can leave a company

vulnerable to unethical or risky practices by executives. An example of this type of behavior is

“rents.” The practice of selling large amounts of stocks when it is advantageous Experts believe

that the rise in executive compensation is much faster than it should. Economic indicators show a

steep rise in CEO pay even during times of moderate gains in the stock market.

This report examines the impact on organizations, communities, and economies affected

by excessive executive compensation. Shareholders, managers, line workers and consumers

suffer when there is an imbalance in a company.

This report lays out a plan to slow the rate of increase of executive compensation using a

combination of ethical practices on all organization levels, legislation designed to reward

companies that work to reduce wage disparity and increased shareholder voting power.

There are issues with this plan. Oversite must be empowered to reprimand offenders and

reward the diligent. However, oversight must be distant. Companies must be allowed to

implement these practices on their own. Embedded within the framework of this plan are the

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“Six rules CEOs can use to take their companies in the right direction,” as explained by Conway

& Samuelson; The Dodd-Frank Act; and Portland, Oregon’s excessive compensation Tax. Each

of these solutions requires full the cooperation by all entities involved. Opponents of the

components of the plan argue that they will not work.

Furthermore, they insist that they solutions may have adverse effects on the corporate

world. The recommendation of this report is to refine each one and combine it with the other

components. Earlier implementation of some of the components shows positive results.

Consideration of this plan is warranted.

Executive compensation is a problem that has recently become a mainstream topic in the

business and political communities.

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Table of Contents

EXECUTIVE SUMMARY …………………………………………………………………………………………………………… 2

EXECUTIVE COMPENSATION OVERVIEW & CURRENT CONTEXT …………………………………… 5

IDENTIFICATION & EVALUATION OF OPTIONS ………………………………………………………………….. 7

THESIS AND RECOMMENDATIONS ……………………………………………………………………………………… 10

CONCESSIONS ………………………………………………………………………………………………………………………… 12

CONCLUSION ………………………………………………………………………………………………………………………….. 13

REFERENCES …………………………..……………………………………………………………………………………………… 13

ANNOTATED BIBLIOGRAPHY ………………………………………………………………………………………………. 15

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Executive Compensation

Overview & Current Context

The disparity between executive compensation and that of the typical worker is a primary

cause of many of American’s corporate problems. During the last four decades, Executive

salaries have increased at a staggering rate. Mishal and Davis (2015) reported that “from 1978 to

2014, inflation-adjusted CEO compensation increased by 997 percent, a rise substantially great

than the painfully slow 10.9 percent growth of the typical worker’s annual compensation over the

same period.” This statistic and others like it have been the center of widespread contention and

debate within the political and economic communities. Studies conducted by major consulting

firms and think tanks intend to ascertain the reasons for the rapid increase CEO compensation

levels, whether it is unfair compensation, and if so, what steps to take to alleviate further