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| Yes | 51% | 391 votes | Total: 769 votes | |
| No | 49% | 378 votes |
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Add to FavoritesEven before the global financial crisis that we now wake up to every morning, the CEOs of large global corporations were making the news with their exorbitant annual compensation packages. It appeared, nevertheless, that such compensation packages were directly tied to the financial performance of their respective business that they directed.
Theoretically, such compensation systems have merit, as it is such systems that attract and retain successful performers and encourage positive results through a rewards system. However, such is the case in current events that CEOs of failing global businesses are collecting huge amounts of monetary compensation.
Yes, there should be limits to the amount a CEO is compensated, but based on a number of business performance factors and not government intervention. Here are a few simple factors worthy of consideration:
Base salary As with any other employee, the salary level of the CEO should be no more or less than what the relative industry offers. In many industries, the salaries of CEOs are insignificant compared to the remaining compensation package. The levels of base salaries should not change that limits are to be based on business performance.
Profitab ility If after all the bills are paid and investments have been made to the future, intended to keep the business healthy, resulting net income is positive and meets or exceeds projections, reward the CEO a weighted fraction of the whole incentive package.
Positive change in profitability Based on last year's performance, did profitability improve? If so, reward the CEO another weighted fraction of the whole incentive package.
Limits, based on competitive base salaries and performance, should be driven by the forces of the market. The CEO is typically a smart enough individual with smart enough C-management staffs that changes in the market are factors that she should be able to deal with and respond to accordingly, including contractions and exit strategies.
Some time between the publicity of oil companies' CEOs being rewarded amounts no one could imagine, to the time that CEOs of failing banks and investments companies were being rewarded relatively the same, performance incentives turned into retention packages. No longer was there a reward system based on performance. Further, it is unconscionable for one of these latter CEOs to accept a reward for failing, but not illegal. By the way, it is unimaginable that any one of these jokers should be retained.
Such a response to these individuals' behaviors or lack of business acumen should not be legislated, but driven by the market, as the reward system should be. The market should be influenced away from such behavior, resulting in the negative performance of the CEO and finally, her forced separation from the company.
Concluding, like all employees of a global corporation, compensation should be relative and determined by the market. Limits should be set by corporate governance, not government. Any limits set on CEO compensation legislated by the government are sure to be arbitrary and would lack any further incentives for the CEO to perform at higher levels. Further, legislation that directly influences the free markets is a step toward a centralized economy and communism.
Learn more about this author, J David Childs.
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No
The CEO is the key person in a corporation based on the ideals of the American Way. The basis of the financial crisis prior to 2009 substantiate the fact that the industry did not learn it's lessons from the Dot Com bust and the 1997 Economic Crisis. In fact, a corporation by definition is a private company with public liabilities with options to issue stocks and bonds to the public whereas an LLC is between it's shareholders and the board.
A Company's CEO derives his income from many means, by an allowance or fixed gratitude stipulated in his employment contract or with some gratuity at the end of the year based on the company's performance and other stock options. I worked in many fields across the globe and though the systems differ, the method of calculation are the same: Pay is subjected to Performance, Returns and Forecasting. As a CEO of a start up, the CEO is the boss and he may be a shareholder of the company. Normally he also owns the majority share in the company unless he took on investors which he has to answer to.
The Chief Executive Officer (aka the boss) have to answer to the Board of Directors which governs the company and vote on key appointments of the company, CEO, CTO, CFO COO as they are responsible and answerable to the board so that the board can vote on the decisions that can affect the future performance of the company such as Net Present Values of assets, projects and other matters for it actually comes down to their paychecks. By far there should be no limit to what they should pay the company's chief of staff, unless it is in the best interest of the company such as banks and co-operatives as the members are the shareholders and sometimes, the employees.
In retrospect, if the pay is capped, there is no incentive for the CEO to outperform his predecessor or his own previous records as there are no extra bonus for him. Same thing would happen to a commission earner if the maximum pay is USD100,000 a month even though they are bringing back sales worth twice as that,which would mean they will try to balloon the sales to next month to show they are doing their job and eventually the company suffers.
As for a bank, the Islamic Banking system promises a percentage return ratio instead of a fixed interest rate. Just as a co-operative, the saver is the investor, allowing the bank to use his money to invest into many means and then take a cut, normally 60% of the returns and the rest is returned to the investors on a daily basis or such an agreement (aqad). However, if the bank's greedy bosses are capped of their interest, they won't take more risks or be more lazy and at the end of the day, the job is not done with due diligence and the institution will fail. Eventually the investors loose faith and the money flow dries up. Same as in technologies and medical sciences. Will the researcher commit his weekends to find the cure for the problem if he is not given a cut in the sales or patents?
As much as I love to cap the bosses income, there is a Malay Proverb saying that the bigger the pot, the more the rice is being burnt. In other words, the more the income , the more expenses they will incur to further enhance their own skills like networking, education, retraining and such more. Even at the current prices, a university degree will cost anything over $250,000 and a graduate school Masters will cost nearly a million dollars. So the income is deemed 100 times the cost of the education, which is a fair deal.The cost of retraining and research over the next 20 years is about twice of that.
Another thing we need to think about is , will Bill Gates commit to so much development if is is just paid $20million a year as compared to his wealth of $20 Billion now? Don't think so. Same as you, will you work harder if you are given an incentive?
But eventually, the biggest payout goes to the fat bosses at the board, as they earn on dividends and such interests. I am definitely working 18 hours a day and weekends too as I do want to make that big payout as opposed to my just meager paycheck at the end of the month.
Learn more about this author, Dr R Azrin.
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