Summarize the information and post it in this forum. You can use a word processor to work
Question:
- Summarize the information and post it in this forum. You can use a word processor to work through the information.
Few topics in the business press have garnered more headlines recently than the highly lucrative annual bonuses earned by top managers. Critics complain about the multimillion-dollar compensation packages offered specifically in the financial services industry, which led to the terrible consequences of the collapse of this sector a few years ago. How do compensation committees determine executive pay? Some researchers suggest that the principles of equity theory (making comparisons with other referent individuals) will explain variations in executive pay. To establish what is considered a "fair" level for top executive pay, board members determine how much executives with a similar level of experience at similar companies earn (similar inputs) and try to adjust pay (outcomes). so that they are equitable. In other words, top executives at big oil companies earn salaries similar to top executives at other big oil companies; and top executives at small hospitals receive salaries similar to top executives at other small hospitals. In many cases, simply changing the reference individuals can change the salary range that is considered acceptable.
According to a postulate of the theory of justice, this should be perceived as equitable, although executives are likely to encourage board members to consider other reference individuals who are especially well paid. Critics of executive compensation changed the debate by focusing on the ratio of executive pay to the pay of the company's lower-level employees. Researcher Cary Cooper points out that, "in business, it is important to reward success and not simply status." Cooper believes that all employees should share in the company's good fortune in profitable times. This author recommended that CEO compensation be limited to an amount that represents 20 times the salary of the lowest paid employee. In fact, the average director of an S&P 500 company receives 263 times the salary of the lowest-level employee. This corresponds to eight times the proportion that existed in the 1950s, which could be another reference point for determining what is considered "fair."
Answer the following questions within the discussion forum
- What relationship exists between the issue of executive compensation and equity theory? Who do you think should be the reference individuals in these equity trials? What are the main contributions of senior executives?
- What do you think are some of the procedural justice implications related to the way compensation policies for senior executives have been established? Do these payment decisions obey the principles of procedural justice described in the chapter?
- Do you believe the government has a legitimate role in controlling executive compensation? How might we use theories of distributive and procedural justice to inform this debate?
- Are there any positive motivational consequences of linking salary to company performance?
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill