CEO COMPENSATION

Organizational Performance and CEO Compensation

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Table of Contents

Introduction2

Research Hypothesis3

Literature review4

Board Control and the Performance of CEO in Taiwan4

Performance of Firm and Executive Compensation7

Compensation schemes of Executives and the corporate profits9

Operational characteristics, Firm performance and CEO compensation10

Ethical issues faced during the Research10

Possible areas of further research11

References12

Organizational Performance and CEO Compensation

Introduction

Monetary and non-monetary benefits have been found to be the most effective in increasing motivation of employees. This is because of the fact that no one work free of cost, all of them work to get something in return. It is the case with the compensation paid to the CEO of the organization. The higher the benefits paid to the CEO the higher the performance of company is witnessed. Several researches in the past have been done which shows that higher the compensation level and shares owned by the CEO the better performance of the company.

If these compensation are not high enough than the principal agent problem arises in the Company. Principal agent problem arises when the principal who is the shareholder of the company hires a CEO as an agent for performing specific task. The Agent in this case has more information of the company in comparison to the Shareholders (Jalbert, Furumo and Jalbert, 2011 pp 16). Therefore, to make the agent work in the best interest of the company the shareholders align agent's goals with their goals; they set higher incentives to higher performance. Therefore, in this way the agents do the job in the best possible way since his interest are also aligned to the company goals.

The CEO of the company is many a times granted shares of the company in high quantity. This is to make the CEO improve the overall profitability of the company. It can be understood in this way that higher the profitability of the company and good management of the company results in good market value of the share, due increased cash dividends and investments (Elayan,Swales,Maris and Scott, 1998 pp.329). Thus being the shareholder of the company, CEO tends to improve the profitability to the max so that they can earn maximum rewards. One problem that arises through this form of compensation is that CEO many a times overstates the profitability of the company, which results in higher increased shareholders value. Therefore, a detailed analysis in this field is required so that efficient pay system for CEOs can be designed which can satisfy the shareholders of the company at the same time keep the Chief Executive officer happy.

In the report we will look into the various researches conducted in the past regarding the Compensation packages of the CEO and the performance of the company. This because of the reason that the past researches cannot be ignored, as they are vital source in providing us the information regarding the validity of the link. That is the link between the compensation of CEO and the performance of the company.

Discussion

Research Hypothesis

The Hypothesis one assumes that when the pay of ...