Is management remuneration too excessive Essay Example | Topics and Well Written Essays - 3000 words

Is management remuneration too excessive - Essay Example In an article published in Business Week, In 1980 it was established that the a Chief Executive Officer working at a any foremost organization, on average, makes approximately 42 times compared to what a worker works on a normal hourly pay. In the next decade, i.e. 1990, this rate had crossed the doubled mark as it was up to 85 times compared to a normal hourly pay of a worker and in the next decade i.e. the twentieth century, the average salary of a Chief Executive Office has climbed to an incredible 531 times of the regular workers’ hourly pay. (Management 2000) This has been always an argument regarding the fact that the management, especially the top management, such as the Chief Executive Officers, Directors, Chief Financial Officers and the Heads of Departments etc are paid extensively more that the normal employee even though their job is limited to the decision making part while the workers have to put in extra impetus from the planning to the implementation stage. Let us go research in this respect whether the management remuneration is justified. Shleifer and Vishny (1997) in their research have described the corporate governance as the means where the providers of funding guarantee a return on their investments for themselves. Since, the profits of the investors largely depend upon the contracts incurred between themselves and the company so a variety of markets operations and the performance of players of finance has developed into various sub-literatures. literatures. need for the growth in pay of executies Lucian Bebchuk in his article â€Å"The Growth of Executive Pay’, discussed the reasons and the need for the substantial increase and the growth of the pay of executives and the top management personnel. He has justified the growth in the pay scale by the comparison of the size of the organization where the executive is employed. He mentioned â€Å"Remuneration level is predictable to augment due to the increase in the size of the firm and performance of the management, which may vary from industry to industry† He has researched over the average size of the S&P 500 firms from 1993 to 2003 and has expressed the fact that with the relevant increase in the size of the organization or the performance of the company, the compensation of the executives has increased side by side showing a very linear trend. Kaplan and Rauh (2009) inspected the query regarding if increase in the management remuneration can imitate the forc es of the market. The idea was that if a top management personnel’s pay imitates the market forces; in that case its increase should be in line with that of other extensively paid occupations. Kaplan and Rauh also assembled some information on the compensation of high yielding professions such as the employees from the financial service sector, banks, and funds and compared them to the compensation received by the business lawyers, professional athletes, doctors and celebrities. Murphy and Zabojnik (2007) proposed the thought that the escalation in management remuneration embodies the move in the significance of the ability of the managerial staff i.e. the talent and ability which is capable of being transferred through several companies related to the human capital which is specific to the firm i.e. precious only to the extent of the organization, which functioned to support the bargaining point of the top executives through improving their options of working at another orga nization. different views of executive compensation Holmstom (1979) in his article published in the Bell Journal of Economics has discussed several views of the executive compensation of which he has highlighted two of those views. He discusses that one of the view which he highlighted as the