By; Rodney Hunter
There are several methods for determining the pay of CEO's in various large corporations. A few ways of calculating payouts and earnings could never be so easy, perhaps let's take a look at a few methods that could make this process a little more broader in action. The first method of action is to by the Market determining the pay through is supply and demand. The reasoning on why this method is an advantage would be that if the law of demand says that at higher prices, buyers will demand less of an economic reasoning. If buyers demand less in the market than that would leave the production boat a little more room for others to portray a move. For example, if Apple is having a really good earnings quarter and they release the earnings and the market is up to par then that corporation method of determining the pay will be dependent on the market and hows its reacting. Now there may be some disadvantages in this because not every corporation
reacts the same or has the same amount of money, let's take a look at this. Say for instance if the price for a case of bottled water for the company was $2, and the quantity of cases of water demanded increased from Q1 to Q2, then there would be a shift in the demand for cases of water. Also it was cause a decrease in pay for the ceos and other employees in that manner. One last example on why this would be a reason on why economist portray this method is for that they need to understand that they call this the market theory of wage determination. Basically its when workers sell their labor, the price they can charge is influenced by several factors on the supply side and several factors on the demand side. The basic of these is the number of workers
available (supply) and the number of workers needed (demand). So if you have a low supply of workers than that pay will be affected by the workers needed.
Now coming along the way people have come up with different ways of actually dishing out pay to corporations. One of the methods portrayed is that the legislation will set a maximum cap on pay for CEOs. Organizations generally put caps on salaries to foster pay equity and manage compensation costs. A Swiss company is to cap executive pay at 12 times the lowest paid employee's salary has failed, with 65 percent of the population voting against it. Hopefully this will be a signal to the rest of the world that this is a bad idea.It's true that CEOs of top companies make huge salaries in comparison to their lowest level employees, but capping wages is not the way to solve that problem.And outsourcing is, of course, what would happen should the U.S. implement a law such as this. Maximum wage is an idea which has been enacted in early 2009 in the United States, where they capped executive pay at $500,000 per year for companies receiving extraordinary financial assistance from the U.S. taxpayers. The argument is to place a cap on the amount that any person may legally make, in the same way as there is a floor of a minimum wage so that people can not earn too little. No longer are the people in a manufacturing plant employees of the company with the highly paid CEO, they would work for a much smaller firm headed up by someone who would have only held a director level job in a big company. Retail? Fast food workers? It's mostly done by franchise owners, but the central corporations would have no reason to keep possession of the outlets they actually own. Better to sell than to be subjected to ridiculously low salary caps for their top teams. Let the franchise owners sort that out. And, if the requirements are strict enough, you'd see no full time jobs at lower salaries. We've already seen some companies cutting hours to keep employees from being subject to Obamacare. You can bet that companies would do the same to stop a salary cap from being activated if they decided to portray that method of max cap on CEOs. The U.S. should look to Switzerland and realize that capping salaries doesn't actually help others get ahead. It may just force lower level employees out of jobs altogether, or cause massive dividing of companies in order to meet the legal requirements while still paying top people top dollar. The pay level of U.S. executives is very high as compared to the pay of executives in other countries, as compared to pay of U.S. executives in the past, and as compared to U.S. employees at lower levels of the organization. Currently, U.S. executives earn about 400 times the pay of the lowest paid workers in their own companies. In Europe and Asia, the pay of executives is about 10 times that of the lowest paid workers. Additionally, many U.S. executives have generous stock option or severance packages that increase the value of their compensation. The high pay rates of American executives have garnered much media attention, particularly when organizations with high pay rates for CEOs and other top employees have lay-offs or plant closings. Many critics argue that executive pay is far too high, and that these pay rates invite ethical problems.
Now, let's talk about how the board of directors and how they base their pay on CEOs on
surveys about comparable corporations. Base salary is the regular annual salary of the executive. While job evaluation is typically used to set employee pay in organizations, executive base salary levels are often more influenced by the opinion of the compensation committee (which consists of some or all of the members of the company's board of directors), which is often dependent on information from salary surveys of similar companies. Perhaps the pay of CEOs and other executives is set to be competitive with other executive salaries in the market and may be very high in comparison to the pay of employees in their own company. There are six basic tools of compensation and its salary, short term incentives (STIs), sometimes known as bonuses, long-term incentive plans (LTIP), employee benefits, paid expenses (perquisites), insurance (Golden parachute). A survey of 100 major U.S. corporations conducted by Mercer Human Resource Consulting indicates that median total direct compensation for the chief executive officers in these corporations was $4,419,300 in 2004.In 2007, the company became simply "Mercer." Also in 2004, Mercer admitted giving the NYSE board a compensation report that contained "omissions and inaccuracies" that led to a $139.5 million pay package for former NYSE Chairman Richard Grasso. Mercer had been brought in to advise the stock exchange on Grasso's 2003 contract and his request for $139.5 million. The consultancy returned $440,000 in fees it collected from the NYSE and provided key documents in the lawsuit. As far as the process being a good aspect or a good method on a CEO's pay is outrageous in my opinion and I think that our country should do a little more broad load of thinking when it comes to pay set outs.
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