Inflated Executive Salaries in the Following Paper Research Paper

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Inflated Executive Salaries

In the following paper the researcher will analyze the reasons why companies feel CEOs are justified to have inflated salaries. The researcher will first outline the issue of executive inflated salaries, then sum up the arguments of the opposition. In the end the researcher will present his/her own arguments and finally conclude with what he/she gathered through the research.

With the emergent of technological-based environment, companies have mushroomed in the stock market to include internet-based firms to register as corporations, equal to those brick and mortar blue chip companies. The nature of the consumer behavior along with the market behavior, force companies to reconsider their strategies. For this purpose they hire executives to assign the task of changing the direction of these companies around less remain behind in profit making. In pursuing these tactics, they inevitably increased the value of CEOs in the industries. Today CEOs are known to have one of the highest paid, at times surpassing the profit level of the shareholders. The reason behind this is based on the fact that CEOs are being valued for the skills they have and not by the profits they bring in. The issue arises whether these CEOs are justified to have such inflated salaries or not [Brinsley, July 2, 2001].

Summary of arguments

Compensation and benefits in a human resource structure usually follow that the employees should produce with accordance to their salaries. Their salary structure is then measured against the profitability of the firm. When employees do not perform in accordance to the designated profitability level, they are removed from the payroll and replaced by someone more competent. Similarly, at the executive level, compensation for the performance is based on the kind of profitability they bring to the firm [Barr, 2001].

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When CEOs bring in more profits then companies try to compensate through allocation of percentage of the profit share by issuing shares to them. The question arises why CEOs still continue to have high salaries when the profit margin continue to decrease [Bendheim, 1985].

Opposition view:

Oppositions are of the opinion that executives' inflated salaries do not make sense. They believe that in maintaining such high salaries, companies are most likely to suffer because even if companies decrease in performance executives are still given inflated salaries according to the U.S. compensation system. The tactic of rewards and benefits therefore result in an imbalance because the primary tenet of "compensation" and "benefit" does not come into play. Hence, there does not seem any justification for rewarding executives with such high salaries when firms continue to suffer due to their poor performance [Lear, Sept, 2000].

Author's view

To understand the validity of the executives increased salaries one must understand the organizations' point-of-view. Executive's determinants are based on efficiency. If executives are to be paid for the profitability level of the firms then the compensation should be as high. When executives are hired at the beginning of tenure they are often given a base line from which they create strategies for the corporations to increase the level of profits. These strategies often result in profits and at the end of the term, they are given certain compensation in the form of shares in the companies they work for as well as salaries. However, as the period of performance transition to another one [that is from short-term to long-term] the effectiveness of the strategy decreases. In this downturn scenario, executives continue….....

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