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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
EXECUTIVE COMPENSATION 2
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
EXECUTIVE COMPENSATION 3
“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.
EXECUTIVE COMPENSATION 4
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
EXECUTIVE COMPENSATION 5
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
