The abbreviation CEO means Chief Executive Officer. Any individual working in an organization under this capacity qualifies to be the executive with the highest ranking within that organization. The position of CEO often implies a very large salary for the holder. Over the years, different companies have been coming up with new ways of motivating and remunerating their CEOs. Most companies have tried to evaluate new ways of remunerating their CEOs for a long time. These companies aim at coming up with remuneration packages that will be affordable to the company as well as satisfy their CEO’s requirements. An analysis of the emerging trends and issues surrounding CEO compensation can be done.
An article written by the CEO Forum Group gives a good example of the methods being used by companies to attract and maintain highly qualified workers, and be able to pay for the performance of such personnel. The article mainly focuses on Australian firms. It explains that, in Australia, the levels of short term and long term incentives for CEOs have been increasing steadily. The results of their study show that most organizations in Australia have been designing incentive programs that are aligned with the business and organizational strategies. The issues that have emerged include asking the question of how companies should evaluate the level of performance of management. Questions have also been asked on what remuneration vehicles will best suit the CEOs e.g. the use of Options, performance shares, equity and cash. The companies have continued to ask themselves the question of whether remuneration systems can aid in supporting sustainable profit growth (Barnes, 2012).
An article from the Ethics World journal recommends that executive remuneration consultants should give sound advice to companies concerning the most appropriate methods of compensating their employees. The journal advises executive remuneration consultants to uphold the principles of being transparent by giving sound and correct advice concerning the designing of remuneration packages. It also proposes that the consultants carry out their advisory role with integrity and objectivity. It stresses on the need to have competent individuals who shall exercise their duty with confidentiality.
Another emerging trend in relation to the subject of CEO compensation is the adoption of claw back policies by some companies. According to an article by Linda Rappaport, one of the changes that have been brought about by claw back policies is that the policies allow the relevant authorities in companies to recall back incentives paid to any executive found to have been involved in some form of misconduct.
The introduction of the “say-on-pay” policy has also greatly contributed to the development of a heated debate concerning CEO compensation. The “say-on-pay” policy refers to the situation whereby shareholders of companies have now been given the ability to have a non-binding vote concerning their remuneration of their employees. The “say-on-pay” policy also recommends that compensation committees of companies should operate independently without influence of company management (Hanna, 2009).
Fabrizzio Ferri, who is an assistant at the Harvard Business School, has carried out a research to determine the effect that the “say-on-pay” policy has had on the current levels of CEO remuneration. He found out that there was little change in the amount of pay for CEOs. However, he also found out that most companies increased their level of sensitivity regarding the comparison of their CEO’s pay and the level of their performance. The increased sensitivity regarding a CEO's performance and his/her pay was more pronounced in firms, where the voting percent is high. In such firms, whenever the CEO performed poorly, the company management looked at ways of reducing the benefits accruing to their CEO. They used methods such as reducing their CEO’s severance packages. The findings of Ferri’s research strongly suggested that the imposition of a “say-on-pay” legislation could be used as a means of ensuring that company CEOs provide quality leadership that maintains a good performance of the company.
The issue of whether CEOs deserve the high pay they receive could be viewed from a variety of angles. One argument that could be advanced is that CEOs shouldn’t be paid the high salaries they are getting since in the current bad economic situation most companies are already struggling to maintain their existence. Payment of hefty salaries to CEOs would only increase the burden most companies have (Shulga, 2011).
Another argument also suggests that CEOs, whose companies are performing dismally, should have reduced their remuneration to lower levels that correspond to their quality of leadership. Any CEO whose company is performing poorly should, therefore, not receive high salaries.
However, some people support the idea that some CEOs deserve the high salaries they receive. These people argue that CEOs have a very crucial role in the running and the survival of the firm. They propose that CEOs whose company’s performance is good, qualify to be paid high salaries. This is because CEOs play a very important role in overseeing the operations of the company. They are the people who make all the crucial decisions of the firm. They also supervise and control all the other personnel in the firm. Therefore, if a firm is performing well, a substantive part of credit could be attributed to the good managerial skills of the CEO.