Executive Pay Research Paper

1110 Words 5 Pages
Value Relations between Investment opportunities, CEO Pay and Economy
Introduction
Shareholder value has always pointed towards the establishment of business profits that will improve and increase the coffers of business owners and improve their economic returns. The agent-principle problem has been at the forefront of establishing the concept of shareholder value in business management and practices, but according to the Fund Manager at GMO, James Montier, and the idea “dumb.” Business globally has been in constant conflict with the real intent and value of executive compensation, with investments in stocks outlining the fundamental notions that improve executive pays, with the idea of performance-related receiving mixed reactions, and ostensibly,
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Since the beginning of the 20th century, CEO and business executives were more concerned with their pay perks, and henceforth an idea arose that CEO payments and compensations must be based on share price, with various options (Buttonwood para 3). In the end, shareholder returns have declined over the years, but CEOs continue to enjoy larger salary perks, with remuneration increasing in real times since the start of the current decade (Larrabee para 4). While CEO tenures have reduced from twelve to six years over time, the majority of CEOs do not care about long-term value returns and in the end, long-term investment opportunities may be damaged. Buttonwood (para 5) henceforth concludes that the concept should be changed and renamed as “CEO Value” considering that they are the primary beneficiaries of all profits and investment opportunities (if any), which has, in the end, led to inequalities. Consequences henceforth include resistance to globalization, anger when voting in the boards, and finally, damage to business operations and investment …show more content…
Additionally, the shareholder value diminishes the value of the economy and also damages the future of enterprises. The primary shareholder notion arose after Milton Friedman coined that businesses have a social responsibility to improve shareholder profits, and the agency theory explored further that executives are agents in their businesses, and hence the beneficiaries of incentive compensation plans (Larrabee para 3). Rappaport is the concession that the link between executive pay and company performance is null, and the idea that increase in company share translates to “positive performance” is void. Any increase in share price will improve the profits of the shareholder without analysis if the company’s performance is good or bad. Jensen and Murphy (para 2) contend that corporate executive compensation is virtually independent of performance and instead of administrators acting as value-maximizing entrepreneurs; they concentrate more on the bureaucratic side of business

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