Unit III – Project 2

The process of compensation was brought in to motivate the high-level managers. The

compensation was paid on the basis of the contribution made by a manager in terms of profit to the

organization. Many researchers are of the opinion, that not only compensation have positive

impacts but also some complexities. Wowak and Hambrick, the two researchers are of the opinion

that the characteristics of managers plays a very important role in formulating the policy for

compensation. However, they do not provide the complexities of this compensation.

There has always been questions raised on how the compensation of CEO and other

managers are decided. On what parameters, do the compensation committee decides, what is the

right compensation package. Many researchers have tried to study the characteristics of

compensation committee, but none are of the same opinion of each other. The question also arises,

do voting rights matter? Normally, in publicly traded companies the shareholder's are not directly

involved in negotiating the compensation package, but the board of directors who act as the public's

representative decides on the package.

The concept of compensation package dates back to second world war, but it came into

prominence in the early 1990s. The parameters were set straight, like what quality of work has

been done by the manager, what did organization gain from the management and how the manager

has led from the front. Even the committee, decided on the compensation package.The

compensation plan not only consists of monetary gains but also equity-based earnings. The other

problem behind choosing the manager was from internal or external sources. Researchers say that

most companies opted for external managers as they think that, an outside member will get fresh

ideas and will be able to run the company much more professionally than the internal one. As the

internal member will be habituated with the work environment and will not be able to extract extra

work from employees.

The trends over the executive compensation have dramatically improved over the years,

today not only CEOs get monetary rewards and equities but also all the fancy toys like cars and also

luxury bungalows to live. All this is not the part of executive compensation, this is an addition over

it. During the time of recession in 2008-2009, executive compensation was a bit low but now, with

the improved economy again the executive compensation is rising at a fast pace.

The drawback of such a huge compensation package is that, with this huge package there is

a huge pressure on the CEOs to perform. If they fail, then all the reputation and hype that was once

building around them is put at stake. Its like with great amount of cash, even greater responsibilities

come.

REFERENCES :

http://web.b.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=46a71286-9c5b-4055-9cc6-3e05eb272e8b%40sessionmgr114&vid=2&hid=120

http://web.b.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=41aea640-13cc-4266-93e3-162cfd910345%40sessionmgr110&vid=2&hid=120

http://web.b.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=755425aa-9f3a-4be6-963e-21af42af010f%40sessionmgr112&vid=2&hid=120

http://web.b.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=0af8d7e2-aee7-46f4-9fdc-100cb943b8da%40sessionmgr111&vid=2&hid=120