Say And Pay Essay Sample

1. Why is executive compensation important? How does it relate to a company’s values?
It is important that managers have the skills and knowledge to deal with issues of corporate governance, ethics, economy, taxation, legal and financial needs of a company. The values of a company are unable to be successfully managed without expertise. Executive compensation must reflect high expertise to ensure that the values of a company are met. The best and brightest managers can lead a company in a more profitable direction.
2. What is “Say on Pay”?
The general meaning of “Say on Pay” comes from corporate law and proposes legislation that would ensure changes to a company’s corporate governance. “Say and Pay” would mean that a company’s shareholder’s have the right to vote on the remuneration of executives. It also aims to meet the public’s demands for accountability and transparency executives pay. It prevents managers working for short term gain and tenure rather than the long term performance of the company. This problem is met by making remuneration policies approved at annual stockholder meetings. It may be supported by companies giving shareholders greater say over nominating directors, inaccurate financial statements, and long term review of executive compensation to stock performance.
3. Name at least five of a company’s stakeholders, and generally describe each stakeholder’s interest.
Chief Executive Officer – The most senior corporate officer that reports to the board of directors they are responsible for the day to day operations of the company and communicating to the general public and with other stakeholders. The CEO may make strategy and direction of the company, overseer budgets marketing and financing and many other responsibilities. The CEO is usually on a limited tenure and therefore the interests of profit justify their career as a CEO in a short period. They may receive a salary, stock bonuses, options, and perquisites. They have an interest in maintaining these incentives and ensuring that harmony is kept between the board of directors, shareholders and the CEO himself.
Board of Directors – The board of directors has the responsibility of setting the policies of the company, selecting and reviewing the performance of the Chief Executive and communicating to shareholders the performance of the company. They set the salaries and compensation of company management and take direction from the CEO about the direction of the company. They are paid a salary and may also have stock options that are linked to the performance of the company.
Shareholder – The shareholder buys shares that represent part ownership of a company. Their dividend of shares depends on the performance of the company and the financial profits. Shareholders can buy stocks, sell stocks, vote on directors nominated by the board, receive dividends and have a right to assets after liquidation. They have an expectation that the board of directors will lead the company in a direction that ensures financial increases in dividend and the long term success of the company.
The government – The government is responsible for ensuring that companies meet the legislative, taxation and regulatory needs that are expected by member’s constituents. The power that companies have over a large number of employees, consumers, the environment and the financial markets means that the government has an interest in protecting their stakeholders from harm. The government must meet the needs of the public, media speculation and other stakeholders that put pressure on government to regulate companies. An example is bailing out companies that have performed poorly while executive pay has increased. For many citizens experiencing unemployment and low wages this is seen as something that the government should take some control over.
Local Communities – are affected by the activities of companies. Employees of companies that are made redundant or that are without jobs often experience difficulties with family life, health, housing and medical issues. Companies that fail also have power over the performance of local economies and therefore the services and needs that are provided to local citizens. The citizen interest’s lies in keeping employed and stopping the impact of companies on local communities.
4. What do you, as individual shareholder, want to see happen during the meeting and why?
As an individual shareholder I would like to see the Board of Directors and Chief Executive compensation realigned with the interests of shareholders. This means changing compensation and perquisites toward the longer and sustained growth of companies instead of short term profits. It also means “say on pay” of executives as stipulated by legislation. As an individual shareholder it would be better practice for CEOs to have limited powers over electing the board of directors to ensure that the board makes decisions that are independent and representative of shareholders. It also ensures that the board meets its responsibilities of corporate governance as opposed to high risk investments and decisions that increase the short term incentives of CEO’s and the board.
5. What do you think the other parties want and why? Provide a one-sentence summary of each of the other five perspectives.
The shareholder wants to ensure that the company will be sustainable and will provide long term dividends. It also wants the company to keep executives salaries in check.
The board of directors want to be able to have the independence to make decisions about executive pay without the excess input of compensation committees, the CEO, shareholders and regulatory bodies. It wants to increase profits of the company and to ensure the long term sustainability of the company.
The CEO wants to be able to create strategy for the company and to have the freedom to take risks without having to be constantly aware of regulation or to be overburdened by the needs of shareholders. They want to increase the profits of the companies and to ensure that their tenure is as successful as possible at a minimal risk to their career. They require some kind of financial incentives to do this not just salary and want their high risk decisions to be reflected in their salary
The government wants companies to be financial and legally accountable to shareholders and the public so that social problems do not occur, resulting from high risk investments of companies.
Local communities want companies to provide long term employment that is relevant to performance of executives. They require with liveable wages so that local economies can be sustainable
6. What do you expect will happen? Who will prevail and why?
The CEO still has an enormous amount of power at their disposal including the inside information they have acquired from top level negotiations. They are in a favourable employment position particularly if they have a reputation at increasing company profits because the company is reliant on their leadership for their performance. They also know that compensation committees have to pay what is expected in the industry and that there job is a high risk one. In the event that the company does not grant them their demands, they can start looking for companies that offer better incentives. The transition of one CEO to another would also be very disruptive to a company because leadership is different for each CEO and there is a settling in period so that is unlikely that they will be fired.
Despite the power of a CEO, no company wants to be seen as over compensating their executives as this would be seen as antagonising the government and the public. Both have felt the economic problems as a result of many companies failing. It is more likely that “Say and pay” will make a gradual transition into companies and their will be continued use of compensation committees that are far more effective in recommending executives salaries. To avoid the controversy over salaries Chief Executives may choose to forgo salaries for other remuneration.