The Strategy Seminar: Business Leaders-Henry Vargas-Practitioner article-Say no to Excessive Executive Compensation: Remedies and Reforms

Say no to Excessive Executive Compensation: Remedies and Reforms

            The issue of excessive executive compensation has been around for many years. Different countries are affected by it. In recent years the issue has been more looked into not only by shareholders but by the media, courts, critics, etc. Although many methods have been created in order to control this issue, it is still uncertain that each approach would make a significant improvement to completely solve the problem. This article attempts to bring an input to create a solution.

            Currently, one of the practices to decrease excessive executive compensation is the aim to promote transparency in the policies of compensation. Exposing executive compensations is believed to make a change in how boards would contemplate each part to have a more balanced compensation and take in consideration any problems with the company. This would improve the way committees deal to decrease costs. Disclosure would also benefit investors from any fraud. It would have standards to make the information available and understandable to shareholders. Some countries like the US, Australia and the UK, require companies to have compensation disclosure. Some states do not have full disclosure. Full disclosure also has been seen to have negative effects, executives may request higher pay if they see other executives earning more. The US Congress also intervened by creating the Internal Revenue Code, whose purpose was to increase the benefits for the shareholders by decreasing compensation to executives and to promote measures that would benefit the business in general. However, it did not bring about the desired results as compensation had increased in the form of stocks. Thus, this shows that implementing tax legislation may not bring about solutions if it is not well planned.

            Proposals from this article focus in having an independent quality compensation committee, improving policies and pay principles, adopt self-regulation and improving board responsibilities. If a committee is truly independent it should have qualitative independent directors, this is necessary to avoid control or influence from executives the company should make clear to the executives that no burden or seeking personal benefits are permitted to influence members of the committee and if so, the committee has the right to reprimand or remove the offender. The second one, focused in improving policies and pay principles focuses in paying for performance of executives and economic fairness. A standard should be made to come up with a fair compensation package that an independent committee in charge of compensation should plan for; taking in consideration the efficiency of the executive, the company, its profits, company’s strategies, stock price, etc. The thirds proposal is self-regulation in which it encourages the company to create its own regulations rather than depending on government regulations. Self-regulation allows for flexibility, it is personalized to the company and improves working productivity. The last proposal is improving board responsibilities and accountability, where the board and the shareholders have a share of control.  Shareholders could participate in removing directors that are not beneficial for the company or that attempt to influence the compensation committee for his/her own interest.

Work cited

Dao-yum, Liu. Say no to excessive executive compensation: remedies and reforms. US-China Law Review. 6:55.Jun. 2009.  Retrieved from       <http://libproxy.uhcl.edu:2057/ehost/pdfviewer/pdfviewer?vid=3&hid=10&sid=71ad34bc-a95c-4d35-8f54-00f2a4c8b975%40sessionmgr15>

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