Business executives, particularly in the United States, commandeer incredibly hi

Question

Business executives, particularly in the United States, commandeer incredibly high salaries and compensation packages. The numbers are approaching and surpassing the $100 million mark, that is a base salary and doesn't include many other perks and bonuses. In some cases, these executives are receiving this compensation even when the company is performing poorly. A number of arguments explain the rise in compensation packages, including market forces and competition for the few talented executives. Where should the line be drawn? Should there even be a line?

If you were offered an outrageous compensation package to join a company that is laying off employees, declaring bankruptcy, and/or performing poorly overall, would you accept the position?

Explanation / Answer

Utilisation of strategy seems to be all pervasive in the economic environment today, therefore compensation management is not untouched buy strategizing resulting in all compensations of employees of an organisation becoming dynamic, and therefore, vulnerable to constant control and monitoring. Compensation is a major input cost for any organisation, therefore, adopting a viable strategy for ensuring that output delivered is commensurate to input required, should be a part of company policy. The most critical post, crucial to the success of an organisation and achievement of its goals, is that of the chief executive officer of the company. Considering this fact every investor is desirous of ensuring that compensation awarded for executive posts, is substantial, supportive of organisational success and operating in their favour. Boards of most companies strive to achieve this by ensuring compensation contracts awarded to executives, result in aligning their actions with achievement of company goals, and simultaneous success, for both. Large basic salaries, how immune to company performance and success but become relevant in attracting the best available talent. Strategy in an organisational atmosphere mostly means focusing on alone time goals of an organisation and ensuring that the plans directing these goals are not deviated from. Keeping this in mind while deciding on the strategy for designing the perfect compensation plan for the organisation would help decide on crucial matters such as linking of increments to team or individual performance and formulating the merit increase grid. It is important to identify the decisions which are necessarily strategic within the compensation management, by understanding the impact a decision a policy may have on the behaviour of workforce and as a motivational tool along with its ease of implementation. For example, the importance of employee groups needs to be assessed to understand which groups may be critical for the organisation to achieve goals and succeed. These groups will necessarily require increased focus and strategy. Therefore it makes considerable sense, to design compensation systems which work along lines of work within the organisation and include segregation aling profiles like professional, scientists and engineers, Sales, Production, clerical, executives and managerial. To ensure that the compensation awarded to a CEO of a company, works in the favour of stockholders, it is essential that the bonuses offered be in tune with performance, and substantial value addition to the company be required for earning the bonus. It should be insured that the performance measurement tools employed effective and do not judge unfairly, on the basis of single events or factors which may be extremely external and uncontrollable, as this may generate negativity within the entire organisation resulting in demotivation. Another intelligent strategy to ensure the interest of an executive officer is aligned with that of the shareholders is by offering shares of the company as compensation, thereby, effectively making a CEO of the company, a part owner. Executive owning a part of the company shares also provides positive feedback to the prospective investors and serves to increase demand for the shares. Managing the compensation of a chief executive officer is a sensitive area requiring adept handling, considering this is the one person who can lead to the success or failure of the organisation.

Peter Drucker was an advocate for maintaining unacceptable ratio between salaries of top level management including the chief executive officer and the compensation paid to lower and Middle level management. His 20 21 mark came to be known as the broker principle after the world economic forum speech in davos Switzerland. Ratios which go beyond this are bound to impact morale of middle management much more than lower level employees within any organisation. the middle level management is always more like the executive management of any organisation and put into action most of the plans conceptualised at the top level. When I use disparity between compensation of top and middle level management, which is largely responsible for implementation of all plans, exists it leads to serious disillusionment among this cadre.

The kind of compensation being awarded to those today makes it extremely difficult to rationalize the figure with the output generated by these CEOs as well as value addition and growth of the company resulting there from. I agree entirely with brokers reasoning that excesses executive compensation can be extremely bad for overall performance of the organization. Excessive pay packages offered to executives tend to show disrespect for contribution of all other employees who are the major support system of any organization. It belittles their contribution and renders it as a relevant to the success of the organisation while placing excessive valuation on the performance and importance of the role of the executive.

Due to such excesive salaries many companies may go to great extent to justify the figures, but when the risk does not pay of and the salary is not substantiated by marked increase in profitability and growth of the organization which can lead to bankruptcy of the organization. It can prove to be a major disadvantage while competing with companies which do not follow this Trend and utilise excess funds available in processes which render more tangible outputs, such as marketing or improved technology etc. The major disadvantage is the impact on the profitability and sustenance of the very company which doles out excessive compensation to the executive. Capitalist culture however will ensure that this Trend is controlled in the future, due to globalisation providing exceptional leadership talent at extremely competitive prices. Competition shall prevail in the market for executives leading to every organisation rationalising compensation with performance and output generated by the executive. Till then the chief executive officers of large corporates will continue to consider the company's bank balance as a private wealth and plunder it without a twinge of guilt.

Pay packages for any company are definitely an issue which exhibits their ethical stance in relation to the way they value the employees and their work output. Compensation packages are indicator of the value placed on contribution of a particular individual to the organisation as a whole. Great disparities which exist between various levels of Management, as well as, within different profiles of the same level, can result in extreme discontent and demotivation of employees receiving comparatively lower compensation due to self worth being greatly deprecated.

2) Michael Douglas in Wall Street may have pointed out that greed is good, and rightly to an extent greed may lead us to strive for the best, thereby help attain greater heights and achievements. Question is at what cost? Is it sustainable? Do the means justify the end? The answers are mostly not palatable for an individual who is ethically inclined. Personal fulfillment and enhancement of self worth what should be the driving forces and not greed for more. These attributes have an essential goal in site where as greed never has, and is an endless pursuit of self gratification.

If I was offered an outrageous compensation package to join a company that is declaring bankruptcy and laying of other Employees with overall poor performance my acceptance or rejection of the position with depend on various factors which would be essential to analyse for me to arrive at the decision. If I could do justice to the package through exceptional performance which could effectively prove to be a turnaround for the company and save it from bankruptcy and bring it back onto the path of sustenance, and subsequent growth I would feel that acceptance of an outrageous compensation package would be justified as the simultaneous gains for the company would be unique and exceptional. This decision would be based on an extensive analysis of all information regarding the company including market intelligence to be sure of my ability to generate the required performance. However, if such analysis reveals that the company may be beyond Redemption in spite of all required efforts due to prevalence of unchangeable or out of control internal and external existing factors, I would reject the offer no matter how high the compensation package.

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