What Are the Advantages and Disadvantages of High Levels of Executive Compensation?

Topics: Corporate governance, Executive compensation, Management Pages: 4 (1164 words) Published: May 2, 2013
Tommy Le N8486666 Kasha – Class 07

Executives are often seen as the most crucial person in the companies. Their daily tasks involve both multifarious management and challenging projects in order to promote companies growth and achieve business goals in the competitive business environment. Therefore, most corporations tend to provide decent wages and welfare to executives for their great contribution and irreplaceable value. Although the right executives deserve high compensation, some people suspect that it might bring the heavy burden and potential risks to the companies. This essay will discuss both benefits and drawbacks of high levels of executive compensation. It will firstly consider the merits including affirmation and incentives for executives and attraction and conflict resolution for companies, and then it will examine the negative effect in relation to justice issue and limited incentives for staff and cost problem and reputation risk for companies.

The most obvious advantage is the affirmation and incentives for executives. On the one hand, the high remuneration can be regarded as the affirmation for their hard work, loyalty and achievement to the corporations. As Maslow’s five needs states, the esteem and self-actualization are the relatively high needs of human, which are usually obtained by professional, educated and trained person. The executives working at the key position are such groups of professionals who need satisfaction and affirmation from the organizations. On the other hand, it can motivate executives by arousing the potential capacity. According to Agarwal (2010, p.28), although there are many perquisites, the most motivating factor for staff to work harder and perform well is money. He further divides compensation into four parts, namely basic pay, short-term incentives, long-term incentives, and perquisites and benefits, and points out that the cash, which is the main element of basic pay, plays the most significant role in...
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