Every American corporation mandates the pay structure of CEOs through its board of directors. The board of directors is responsible to dictate the CEO's pay based on his or her performance. More than 60 percent of all the American corporations have a CEO who serves as a chairman as well as a chief executive officer. So, the individual who chairs the board is largely left responsible for his or her own pay scale and bonuses.
Quite surprisingly, CEO's of major American companies' average more than $10 million in wages and bonus. This means the pay scale is 350 times more that what an average full-time American worker makes.
According to a study published by the National bureau of economic research "the increase in pay of senior executives and superstars in other fields has been a major source of rising inequality of wages in the United States. The reputation of American business, already scarred by corporate scandals, is continuing to get degenerated because of rising income inequality.
Due to expressive shareholders outrage and media attention, there has been a growing concern among board of directors to consider the issue seriously. The main reason for raising the CEO pay is the fear of losing an effectively performing CEO and to make sure this does not happen; compensation committees rely on surveys by consultants who prepare a report stating a higher CEO pay in similar companies disregarding the performance of a company. The survey shows that every CEO is placed in the upper quartile as a compensation committee of any company in America does not want to admit that its CEO is below the median.
To solve the problem of rising CEO pay, the board of directors should recognize the mistakes of the surveys conducted by consultants and should at a minimum insist on surveys that rely on company's performance. Moreover, compensation committees should focus on shareholders acceptance. Board of directors should also align the pay scale with what is earned by the top management of the company.
About Author: Pauline Go is an online leading expert in finance industry. She also offers top quality financial tips like :
Payday Loan Tips, Research On Inflation And Collective Bargaining
Article Source: http://EzineArticles.com/?expert=Pauline_Go
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