CEO Compensation
- The high CEO compensation had been a debatable issue over the years among corporates as well as the investors all over the world. Market analysts and stakeholders had criticized companies for paying exorbitant compensations to CEOs and argued that this would widen the gap between the top level and other levels of management.
- By early 2001, paying high compensation to CEOs became a very controversial issue due to the global economic slump and poor performance of corporates. The issue was strongly debated not only in the US, but also in countries including UK, South Korea and India.
- The shareholders were not happy with the fact that CEOs’ salaries continued to rise in spite of the poor performance of the stocks. They argued that, though the compensation of the CEO was linked to the company’s performance, there were instances where, in spite of the poor performance of the company, the CEO concerned got a decent hike in compensation package.
Guidelines for CEO Compensation
A corporate governance aspect to CEO-pay
- Revolves around the decision process involved in fixing a CEO’s compensation; In some, corporate HQ lays down the broad guidelines while the actual compensation is a function of local market conditions
- In the Indian context it is the board of directors that decides the compensation of CEOs
- Since most CEOs also chair the board, this means they write their own pay cheques.
However, some companies (especially the progressive ones) have compensation committees in place
Corporate Governance: What the ideal situation should be
- At a theoretical level, compensation committees are a must in companies that weave performance-based and stock-based variables into the overall salary.
- With an increasing number of companies moving to such compensation structures, committees, logic dictates, should become the norm.
- More important, regulations may soon insist on external representation on these committees.
