Due to their power, company executives are likely to overpay themselves. In addition to salary and bonuses, most executives receive other forms of compensation including incentives, stock options, expense accounts, and severance. One company that abused executive compensation without consumers knowing was Enron, who came under scrutiny after their scandal in 2001. This is an example where executive compensation ran wild, as the top 200 employees received $193 million in salaries and bonuses in 1998 to $1.4 billion in 2000 (Wikipedia). Today, companies have compensation committees who act on behalf of the company in deciding how compensation is to be paid, thanks to the Sarbanes-Oxley Act in 2002.
The Securities and Exchange Commission (SEC) adopted a set of rules on January 25th of this year for shareholder approval of executive and “golden parachute” compensation under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rules state the say-on-pay votes by shareholders must occur at least every three years and a frequency vote is to be conducted every six years to determine how often shareholders would like to be presented with a say-on-pay vote. Finally, the rules require companies to disclose information to shareholders regarding “golden parachute” compensation, or severances and benefits given to executives during mergers. Say-on-pay forces the board of directors and shareholders into a system of checks and balances to ensure executives are paid fairly.
Executives receive high pay and benefits because they are responsible for the business’s financial success. It is great that measures have been put in place to help ensure a democratic pay structure for executive compensation. But will companies outsmart these measures? Only time will tell.
Articles cited: http://www.sec.gov/news/press/2011/2011-25.htm
http://en.wikipedia.org/wiki/Enron_scandal
Image: http://www.consumerwarningnetwork.com/wp-content/uploads/2008/12/money-hording-executive3.jpg
Executive Pay,
ReplyDeleteWe as a nation have expected executive pay to sky rocket, to the unprecedented levels. I believe that the placement of such high expectation from one individual has cornered us into this quandary.
Once we as a nation of workers understand that all workers contribute to the success of company, not just one person, will we then begin to see a lowering of these sports figure packages.
I think that it is a shame that people would abuse the companies they work for like Enron did and not feel bad about it. I agree that it is great that there is a system in place to help prevent this from happening, but like you had mentioned, they may find a way to outsmart the system. I feel like these types of people would definitely take advantage of any loopholes they can find.
ReplyDeleteEnron was a perfect example of everything that was wrong with Executive pay and excess. Having a system in place that will oversee Executive pay and how these individuals are compensated is great and can only save the company millions of dollars- if not billions!!
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