Mgmt 350 - Executive Pay

Arkan Al-banna

MGMT 350

Dr. Calo

Nov 04 2010

Executive Pay

Pay is an important feature of human resource management, it is the main reason

why people work. It is a sensitive and controversial area that has been extensively debated at

both practical and theoretical levels. This compensation can be considered fair if the

achievements and contributions are incredibly scarce. It becomes a problem for the rest of the

members of the team because they want to be recognized appropriately for their contributions as

well. If the people that are overlooked do not become appropriately compensated for their

important duties, it is not a problem, but when the company begins to suffer, they then realize

just how important those people become.

Many factors have to be taken to consideration when considering the fairness of executive

pay. The executive pay package should be responsible to shareholders, which means that it is not

so high that it detracts from company profits or that its incentives discourage unethical influence

of stock prices. Also, pay packages must be competitive with those of other similar organizations

so that executives can be recruited, rewarded, and retained successfully. If a pay package is not

competitive, there may be motivation problems or turnover. Besides, executive pay should fit

with the company's strategy so that it encourages overall company success. This is particularly

relevant in regards to short-term bonuses and long-term incentives which can be used to steer the

performance of the executive and the organization, and the compensation for executives must be

in compliance with regulations. There are a number of laws regarding retirement plans, stock

options, and other compensation components which must be followed when designing executive

pay plans.

There is a strong relationship between performance and rewards. In some organizations the

reward