What criteria do you think should be used to determine a CEO’s pay and raises? Would the criteria change based upon the industry; or profit versus non-profit company; why? Should the criteria be objective, subjective, or both; why?

Question descriptionPreparation:

  1. Read Article on regulating CEO pay (see Article/Resources link).
  2. View Videos on Decision-making and Fundamentals of Economics

Topic:

Executive compensationor executive pay is composed of the financial compensation and other non-financial awards received by an executive from their firm for their service to the organization. It is typically a mixture of salary, bonuses, stock, benefits, and perquisites.

The three decades starting with the 1980s, saw a dramatic rise in executive pay relative to that of an average worker’s wage in the United States, and to a lesser extent in a number of other countries. Observers differ as to whether this rise is a natural and beneficial result of competition for scarce business talent that can add greatly to stockholder value in large companies, or a socially harmful phenomenon brought about by social and political changes that have given executives greater control over their own pay. Executive pay is an important part of corporate governance, and is often determined by a company’s board of directors.

Questions:

  1. What criteria do you think should be used to determine a CEO’s pay and raises?
    1. Would the criteria change based upon the industry; or profit versus non-profit company; why?
    2. Should the criteria be objective, subjective, or both; why?
  2. Is legislation needed to regulate CEO salary; why?

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