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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