Financial Crisis And Economic Meltdown - 1527 Words

Concerns about the compensation of executive officers and other top executives of American public companies have reached fever pitch since the financial crisis and economic meltdown recently. Some observers blame the recent recession in part on the unsound compensation arrangements for the top management of major financial institutions. For almost 20 years, a growing reprise of voices—including some shareholders, the business media, policymakers, and academics—have been criticizing the way top managers are paid. The criticisms focus particularly on CEOs not only because they are the highest paid, but also because their compensation sets the pattern for executives beneath them. Flawed compensation arrangements have not been limited to a†¦show more content†¦Immense salary imbalances between CEOs and the people who work for them can send bad feelings throughout an organization, weakening loyalty and eroding the talent syndicate. Year in and year out, the same cus tom is played out in the business press; compensation figures for the highest paid chief executives elicit predictable talks about overpayment. Although economists have found that many CEOs are worth every nickel they get, social scientists are looking more closely at the psychological effects of executive pay on corporate life. One standout associate; Charles O Reilly, director of Stanford GSB s Center for Leadership Development and Research who has conducted a series of studies that try to explain CEO compensation, ranging from how corporate boards decide upon salaries to how social status figures in setting executive pay. One of O Reilly s latest papers examines how chief executive salaries affect employees. The study found that inequity in CEO pay triggers increased turnover among managers below the chief executive. Using data from 120 large public companies over a five-year period, O Reilly found, for example, that in one firm