Executive Compensation: Don't Blame the Pay Problem on the Incentive System

The public has been criticizing about the exorbitant amount of money that CEOs be making and questioning the validity of the pay system; however, it is the remote factors that ca consumption this excessive growth in the administrator payment package rather than the acquitpile survivals compensation schemes. In Lublin and Thurms article, lavatory Soaring Executive Pay, Decades of Failed Restraints, it suggests that it is the critics efforts to restraint CEOs pay that cause the executive compensation to skyrocket over the decades. It was the disclosure requirements that make the compensation plans competitive. Instead, the use of stock options as performance measures does align the stakeholders incentives with CEOs incentives.

The stock option compensation actually strengthens the link amidst pay-for-performance for CEOs as stock option valuations account for 98% of the link among pay and performance for the average chief executive... (Hall, 2000, 124). Ever since the companies started to use stock options as compensation tool since 1980s, the linkage between pay and performance has increased tenfold because CEOs are case-hardened like owners rather than bureaucrats and they are being paid for the growing of the associations economic value (Hall, 2000, 124).

Stock price embeds all value-relevant information about the high society where as accounting system only reflects the economic value added information. (Dutta & Reichelstein, 2005, 1069).



Value added information such as company reputation and social capital are less liable(predicate) to be manipulated in comparison to economic information. With stock option incentive in place, managers will strive for the optimal food market and economic result instead of constantly trying to replete the bottom line of meeting revenue growth target. Therefore, stock option incentive reinforces forward-looking mindsets when executives are assessing investment opportunities.

CEOs do try to increase the share price when their compensation is intemperately based on equity incentive, because they could benefit...

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