Corporate Governance & Ethics for Bonus- myassignmenthelp.com

Question: Discuss about theCorporate Governance Ethics for Bonus and Basic Salary. Answer: Introduction The issue of executive compensation, in terms of bonus, basic salary, restricted share plans, pensions, stock options and the other benefits have been a matter of controversy for a number of years and has garnered attention of academics, regulators and media personnel. This criticism surrounding this is the concern related to executive pay level, the relationship of this with the performance of the company and the shortfall of executive pay setting in stopping the managerial excess (Neokleous, 2013). This report highlights how the executive remuneration has been used to maximize shareholder wealth whilst the failure in doing so has been criticized. Corporate governance issues related to remuneration In one of recent meetings of the compensation committee, the ongoing debate regarding income inequality was pointed out by one of the directors. Executive compensation and income inequality have been identified as being two of the most contentious issues in the present day political and economic discourse. The rise in inequality has been blamed upon by the critics in last two years or so on the rise in the executive compensation of the public companies. The inequality here refers to the percentage of total national income which the top percentage of taxpayers earns. In US, there has been a much faster growth in the CEO pay in the last thirty years, and the present difference between pay of CEO and average worker is 300:1. There have been a number of commentators who have cited this excessive executive pay as the key reason for income inequality (Kay Martin, 2016). There are others who state that the critics are wrong and that even though there are major issues with the CEO remuneration but the excessive pay was not the big issue. The real matter was the manner in which the CEOs were being paid, in context of its how. In majority publicly held companies, the top executives compensation is independent of performance virtually. Due to these reasons, that the CEOs act like bureaucrats instead of acting like value maximizing entrepreneurs which the companies need for enhancing their standing in the world markets. In one of the detailed statistical conducted on executive compensation, it was seen that the executives were paid in different terms like salaries, bonuses, stock options, and stock ownership. It was noticed that even with headlines showing contrary, the top executives were not getting record bonuses or salaries. Even though there had been rise in the executive pay in last few years, this was just done to catch up to the fifty year back co nditions. A key point worth noting is that the annual changes made in the executive compensation are not a reflector of changes in the corporate performance. The reality was that the executive compensation was getting worse instead of getting better (Jensen Murphy, 1990). Criteria for review A survey conducted by Booz Company in 2011, showed that 20% of the departures of CEOs, was due to poor financial performance or due to irreconcilable differences. The CEO removal is particularly costly owing to the instability which comes with it, and the costs associated with hiring new CEO. Such situation can be raised due to poor recruitment, but can also be raised due to lack of clear expectations for the CEO from the beginning or the failure in regular evaluation of performance of CEO. Thus, the CEO evaluations are undertaken by the boards for solid reasons. Often, there is the CEO performance evaluation paradox, which needs to be overcome for reviewing the top employees of the company (Beck, 2013). In evaluation of CEOs, some of the principles which have to be included are aligning the performance of CEO with the objectives of company; based on clear expectations which are agreed and developed in advance with CEO; having agreed, clear and transparent link in between the remuneration and the performance outcomes; encouraging the CEOs to set up developmental objectives and the plans, along with providing specified directions as are required from the result of the evaluation process; conducting in a way which is conducive to the present good governance; tailoring to the specific needs of the company; and complying with the relevant standards for accountability, along with communicating the results for the company (Beck, 2013). (Source: Beck, 2013) Governance of organization The very essence of good corporate governance is making certain that there are responsible relations between the stakeholders and the company. It is way more than mere compliance. It can be best defined through CRAFTED principles of governance, which shows the climate and culture of C- Consistency, R- Responsibility, A- Accountability, F- Fairness, T- Transparency, and E- Effectiveness which is D- Deployed throughout the company (Argden, 2010). Governance refers to the processes and structures of control and direction and of managing the various external and internal relationships in terms of elements like accountability, performance and compliance (Manu, 2018). The businesses are expected to follow the Principles of Corporate Governance which refer to the governance practices in the structure of evolving laws and the stock exchange regulations (Business Roundtable, 2016). Every nation has their own set of corporate governance rules which have to be followed based on the business being conducted in that nation. These are deemed as the basic requirements, particularly due to the geographical boundaries in business being eliminated. The principles and concepts like corporate governance and corporate social responsibility have to be followed, particularly in context of remuneration of the executives, so as to ensure that there is both accountability and transparency in the manner in which the key personnel of the company are paid (Tricker, 2015). Recommendations and Conclusion From the discussion undertaken in the previous segments, it can be concluded that there are a lot of controversies which surround the executive remuneration. However, in order to deal with such issues, it is recommended for the companies to adopt the principles and concepts discussed in previous segments, in terms of CRAFTED principles of governance, corporate social responsibility and the like. This would bring transparency in the pay structure of executive remuneration and would also help in linking the performance of the executives with the company objectives. References Argden, Y. (2010). Measuring the effectiveness of corporate governance. Retrieved from: https://knowledge.insead.edu/leadership-organisations/measuring-the-effectiveness-of-corporate-governance-1149 Beck, J. (2013). CEO performance reviews that work. Retrieved from: https://www.effectivegovernance.com.au/ceo-performance-reviews-that-work/ Business Roundtable. (2016). Principles of Corporate Governance. Retrieved from: https://corpgov.law.harvard.edu/2016/09/08/principles-of-corporate-governance/ Jensen, M.C., Murphy, K.J. (1990). CEO IncentivesIts Not How Much You Pay, But How. Retrieved from: https://hbr.org/1990/05/ceo-incentives-its-not-how-much-you-pay-but-how Kay, I., Martin, B. (2016). CEO Pay Ratio and Income Inequality: Perspectives for Compensation Committees. Retrieved from: https://corpgov.law.harvard.edu/2016/10/25/ceo-pay-ratio-and-income-inequality-perspectives-for-compensation-committees/ Manu, C.A. (2018). GOVERNANCE: Concepts, Principles and Applications. Retrieved from: https://www.ghanaweb.com/GhanaHomePage/NewsArchive/GOVERNANCE-Concepts-Principles-and-Applications-29457 Neokleous, C.I. (2013). Executive Remuneration as a Corporate Governance problem. Retrieved from: https://euractivgreece.blogactiv.eu/2013/06/30/124/ Tricker, B. (2015).Corporate governance: Principles, policies, and practices (3rd ed.). Oxford: Oxford University Press, USA.