how executive pay affect company performance

Topics: Corporate governance, Management, Corporation Pages: 2 (626 words) Published: February 17, 2014

Company executive is always the person who makes decisions and guides the company. It is interesting to investigate whether executive pay exerts impacts on the company performance. Executive pay includes their salaries, shares and subsidies while company performance is defined as the profit and stock value of the company. This issue is in fact highly complex. To a larger extend, it is believed that executive pay influence company performance. In the following, the degree and reasons behind of how executive pay affect company performance will be discussed.

First of all, executive pay will directly affect the working incentives of the company executive thus the company performance. According to a research paper called “ Corporate Governance, Executive Pay and Firm Performance: Evidence from Bangladesh” written by Rashid, it is believed that there is a positive relationship between executive pay and firm performance. Executive pay may consist in form of money, shares and stock etc. If an executive is paid by shares or stocks, he will work harder as the performance of the company will directly alter the salary of the executive. He would consider all decisions carefully.

Besides, high executive pay will pose a positive effect on the company’s gain. A journal called “the effect of CEO pay deviations on CEO withdrawal, firm size, and firm profits” proved that a high salary payment to CEO can fulfill their higher order needs which includes both monetary and non-monetary effect (e.g sense of achievement; self-actualization). CEO may show their values to the company. On the other hand, it will also lower the possibility of CEO’s withdrawal. It can thus stabilize the management of the company.

Furthermore, high executive pay can be a means of tool to attract talented people. Many businessmen set their career goal as to become a CEO of a company. There is a high possibility that people will intend to enter a company with higher salary. A company usually works as...
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