The Compensation of CEOs: Corporate Culture, Executive Renumeration (Term Paper Sample)

Executive Remuneration
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Corporate firms have adopted a socially aligned governance measures in structuring numeration for CEOs to achieve positive benefits for the shareholders in a widespread international trend. In fact, socially responsible firms have come to employ corporate culture in relation to its employee performance. The focus on CEO compensation is kept on check for the interest of the shareholders, stakeholders and the society. Thus, in recent times, most corporate firms have come to base CEO on performance to protect the interest of its shareholders. The shareholders have been persistent and advocated for performance-based compensation for executives by their involvement in decision mainly by voting against remuneration without a foundation on the corporate performance (Conyon & Peck 1998).
The case studies involving, GlaxoSmithKline plc, Royal Dutch Shell and America International Group (AIG) serve as example of the revolutionary conflict decree that the board of directors have come into with its shareholders regarding CEO compensation. The three firms have a common problem; the compensation offered to CEO puts the firms at a risk of agency cost in case a CEO’s pay and CEO turn over fails to deliver on the target benefits aimed at by its shareholders and the firm at large. Each case study has significant emphasis on the relation between executive compensation and the output of the corporation. Thus, this has come to shape corporate governance and lead to development of harmonious and productive relations between the corporate governors, its executives and the shareholders (Conyon & Peck 1998).
On the other, the three firms from the case studies share a common trend in reduction of CEO compensation after advocacies to base the remuneration performance unlike the previous remuneration offered by the directors. In each case, it is noteworthy that the relation between performance of the firm and the executive remuneration is the main interest of the shareholders balances the equation for both the employees and other stakeholders. The remuneration of the executives based on performance boosts investor confidence, and checks the executives’ commitment since they are bound to benefit and receive a pay turn over depending on the firm’s performance record (Frye, Nelling & Webb, 2006).
The stakeholders has used the socially responsibility mechanism to influence the decision making process in the corporate governance. In essence pay –performance sensitivity has played a substantial role in establish a balance as to extent a CEO’s remuneration is worth depending on the performance of the corporation. Thus, there is a firm emphasis on firm performance and compensation hence increased performance following implementation of performance-based compensation. This has been so mainly owing to stock grants. This approach is closely related to financing constrains and risk aversion by the use of combined measures such performance and contract monitoring which induce managers to take incentives. This mechanism has proven effective and undisputable. Overall, the stakeholders have put on the table a mechanism that serves the general good of the firm and interest of all its stakeholders (Pass, 2003).
Observance of the mechanism undertaken by shareho...