CORPORATE LAW AND SECURITIES

Corporate Governance

Corporate Governance

Introduction

In the 21st century, the importance of corporate governance has been recognized and the subject is being studied further. All corporate organizations, including both public and private, profit and non-profit, joint ventures, partnerships, academic and community institutions, as well as all governmental department and agencies, have corporate governance. Corporate governance is considered as the way of exercising power over the whole organization (Tricker, 2012, p.5).

It includes activities such as, creating and maintaining relationships with all the stakeholders, individuals who are managing business operations, internal and external auditors, and other regulatory stakeholders. The responsibility of corporate governance is to ensure organization runs in the right direction and has a realistic vision. The corporate governance board members are responsible and accountable for management of the organization (Tricker, 2012, p.5).

Analysis

Overview of Corporate Governance

The global financial crisis of 2008 has engulfed the economies around the world causing failure of business markets and resulting in recession. The reasons behind these global economic failures are linked to corporate governance. Corporate governance is the way in which members of the board run organizations by developing principles and policies. These guidelines set the behavior of employees, shareholders and customers (Tricker, 2012, p.5). The integrity and efficiency of these board members plays a key role in financial management. Weak and poor corporate governance can create difficulties for the continuity of the business. Good corporate governance makes the organizations outperform and attract investors who can further foster the future growth, and financial requirements. The board members promote the transparency of the financials and protect the shareholders rights.

Overview of Executive remuneration

There is a vast difference between the compensation plans of executives and managers in organizations. A keen interest has been developed in researchers regarding executive remuneration due to the increase in salary levels and change in their packages over the last decades, specifically in US and UK region (Tricker, 2012, p.5). Executive remuneration includes salary, total cash package, long term incentives, equity and stock options, and other benefits such as retirement plans, club memberships, travel reimbursements, paid holidays and other allowances.

Executive compensation is a key element of corporate governance. It is important to retain the individuals in organizations who have knowledge and can provide a vision and realistic strategic intent. For the success of organization and interest of shareholders it is imperative to provide these corporate members a compensation package which helps in their retention (Tricker, 2012, p.5). However, the organizations must make sure that these packages do not exceed very high and remains in the context of the budget. The competitive market forces and management decides the executive remuneration of a corporate member.

Critical Analysis - “To align interests of shareholders and managers, there should be a close relation between executive remuneration and corporate performance. Although executive remuneration is a mechanism of corporate governance, it has now evolved into a corporate governance problem of its own.”

In the past few years, organizations have moved from a fixed compensation plan towards a remuneration scheme which is subjected to performance ...