Executive Compensation the Average Compensations

Executive Compensation

The average compensations of the executive as compare to the worker salary are high enough. According to some research reports, this compensation or payment gap between the executives like CEO or managers and the ordinary workers were 85 times higher in 1995 and in 2009 it was 219 times higher (Mackenzie, 4). It can bee seen from these reports that the rate of executives compensation are increasing rapidly every year. The aim of this research report is to analyze the influences of the higher executive compensation on the social environments as well as on the Canada's economy. This report will also focus, examine and compare the executive compensations of Canada and USA. The purpose of this report is to examine the reasons, how these compensation rates were increased in last 25 years. Executives play an important role in every organization and act as key members. They can be considered as the leaders of the workforce because they lead and manage the standards, process, production and quality of an organization. The executive high compensation rates are understandable because of their specific and crucial responsibilities. But as stated above the growing compensation gap between the executives and workers is fundamental factor of inequality. This inequality influences on the environment of society and produce the negative impacts.

The executive high compensation rates not only impact on the country's social environment but also affect on economy. It should also be noted that the growing inequality is not just because of salary or wages differences but also on the executive shares and stock in organization. Executives also get the high benefits in the form of allowances and bonuses. The board of governance or the organization director depends and invests too much in order to compensate the right person for the executive job. The government can control the high compensation issue by implementing the regulation procedures and tax system on such a high and outstanding executive salary packages. There are many draw backs in order to regulate the government base regulation. Business community and executives usually consider these regulations as government interference on business and it has a potential to unstable the government politically. Therefore this executive compensation regulation system is not a good option in order to reduce or eliminate the inequality. On the other hand, taxation system can reduce the income inequality and the peoples can get benefits from the tax system (Mackenzie, 10).

Current Executive compensation system in Canada

Previous researches on executive compensation have showed that the bonuses and other incentives for executive enhance their performance. This type of compensation and incentive provides the short-term benefits to the executive. The share holders and stock options increase the executive interests for a longer period and they get high compensation as compare to the bonus base compensation. The bonus-based compensation is also known as cash compensation. The executive performance depends on the type of compensation they are achieving. Recent researches showed that the executives having the share holders and stock base compensation do not perform well. Therefore, it can be concluded that relationship between the performance and compensation are not much strong (Jiang, Par 2.).

In order to examine and analyze the current executive compensation system in Canada, it is helpful to categorize the compensation structure according to the firm kinds. These kinds of firms are family-controlled, institutional controlled and wide -- held firms (Jiang, Par 4). The family controlled firm hires the family members on the executive or management level. This produces the strict and high compensation control and monitoring system and protects the owner interests. . The family controlled and institutional controlled firms focus on the nature and the protection of investments. This provides effective monitoring of share holders. Usually they have large share holders which increase the executive performance. Whereas the monitoring system of share holder in wide-held firms are not effective due to unmatched benefits and the high monitoring cost of small share holders. The shares monitoring system of family controlled firm are more effective then the institutional controlled firms due to the fact that family controlled firms hire the family members on executive pots. The executives from the family members are helpful to establish the close monitoring system and also influence on the executive's performance.

The executive compensation varies according to firm size and it also depends on time. The size of the firms can be determined by the sales data, assets and the number of workers. The components of executive compensation are the combination of both short-term compensation such as salary and bonuses and the long the term compensation which is usually base on stock and shares. The relationship between the executive pay and performance has also been described briefly. The goal of an organization is to achieve the maximum profit, share holders and owners get financial benefits from this profit. The managers or executives are responsible to manage the firm normally focus on self benefits rather then share holders or organization interests. This issue can be avoided by providing the attractive compensations and incentives to the executives. For examples by increasing sales or production, executives may claim more compensation. Therefore the relationship should be based on profit-compensation and there must be no relation ship between high sales or production and the compensation (Sharma, Smith). Political and social factors also play important role in executive compensation. Executives try to influence politically in order to stable or increase their compensation. Executive high salary and compensation impact on the social environment because it leads the inequality in society as ordinary workers payments can not match with the executive compensations. The firm size also impacts positively on executive compensation. The small firms show the negative impact on executive compensation whereas; the large firms exhibit the positive effects.

The impacts of executive compensation on social environment

The role of executive is also critical and important in order to achieve the organization goals. The extra ordinary high executive compensation in the Canada or United States produces the long-term negative impacts on society. If the executive compensation is 20% or greater then the average executive compensation, it can be termed as excessive payments (Whelton, 15). The unequal wealth distribution is unfair for the society but the capitalism which is the foundation of U.S. society, offers the rewards for the talented person. The executives are getting the large percentage of the firm income. Executive high compensation not only affects the society but it also impact on the ordinary worker, affect on nation and community as well. Executive high compensation is creating the criminal and cheating culture in the society. The most important reason is the unfair wealth distribution and lack of comforts for the ordinary workers. In order to control such a high executive compensation, there is a need to reform the law and reduce the high compensation. The executive high compensation affects on the ordinary workers which results in low quality products.

The inequality of executive compensation and ordinary workers salary influences considerably on the social environment. The compensation inequality creates the issues in society such as social unrest, high crime rates, mental and health problems. The growing income inequality in Canada can also be considered as an obstacle for economic growth and damaging the political democracy. The growing compensation gap can be resulted in financial instability and increasing the risk of worst financial crisis. The absence of reform processes to the social, economic and labor policies are the main reasons for the growing inequality (Lazonick).

The effects of executive compensation on the country economy have been compared from the survey in U.S. based firms. This survey focused on the long-term implications of the executive pay policies. These policies helped the firms not only to control the costs effectively but also pointed out the issues like the public criticism and protect the share holder interests. The firms have started to address the compensation inequality issues, which also impacts on the economy. As it ash been discussed that higher executive compensation not only produce the income equality but also impact on the country economy. The necessary actions should be taken like the freezing the salaries, decreasing merit budget and delaying the increase in salaries. The tax policies also play an important to reduce the negative impacts of executive salaries on economy. Another important action in order to reduce the negative impacts is that the companies should change the long-term incentive packages and the stock options or share compensation should have time-based restriction ("Effect of the Economy on Executive Compensation Programs").

Executive compensation comparison between U.S. And Canada

The Canada and USA have very similar regulatory conditions in term of the higher executive compensation. The higher executive compensation is also attracting the attention of public, media and the policy makers. Previous studies and research have showed that the U.S. executives earn two times higher then the executive in Canada. The U.S. executives are earning higher compensation due to the difference in labor markets and the stock option. The U.S. firms implement the stock or share holder compensation options whereas some Canadian firms focus on the cash compensation or other short-term bonuses and incentive. In order to compare the executive compensation in both countries, the countries firms should be matched and compared according to industry, size and operation. The executive compensation can be measured or compared accurately according to the industry and firms sizes. From the data, it was found that the executive compensation in both countries were high whereas the firm performance was reducing. The data collection for the executive compensation in both countries provides the detail information on the executive salary. Executive compensation can be divided into four main categories such as salary, bonus, benefits and long-term incentive plans. These benefits include the incentives like medical, life insurance, pension allowances plan and many other incentives. Bonuses and benefits are the short-term compensation and these are the part of the salary packages. The components of long-term incentive plans are the stocks and shares. The long-term incentive plans or the stock base compensation is the largest part of united state executive. This incentives plan is same for Canada. The Canadian firms contain over 90% stocks options and this percentage is increasing every year (Sapp, Southam). There are many other factors which influence on the compensation comparison of two countries like U.S. And Canada. These factors are the differences in tax laws, regulatory and monitoring system of stock option and the cultural differences. These differences can be neglected because it highlights the comparison of the United State and Canada due to the fact that taxation and monitoring system are almost the same. The Americans tolerate the inequality more then Canadian because Americans focus on the benefits, efforts and talent. The Americans firm rewards the talented personnel by providing the share base compensation. It can be concluded that the executives compensation difference in both countries are not much high.

Another interesting way to approach the two countries compensation comparisons is to compare the pay-performance sensitivity. The pay-performance relationship depends on the economic regulations and it affects on the firms performance. The higher executive compensation raised the public concerns and inequality issues. Therefore due to public concerns, U.S. did not disclose the executive compensation to the public. As it has been stated earlier that U.S. executive compensation base on share or stock option. This resulted in the higher and attractive long-term executive income as compare to other countries in the world. The aim of this stock option is to encourage the executives financially and maximize the share holder profit. The Canadians have implemented the same practice in past and they disclosed the executive compensation to the public also. Studies have shown that the pay-performance relationship is positive for the Canadian firms. There is a commission for the executive compensation in Canada which was obtained from firm's proxy statements. It was required to disclose the payments to executive officers. These data were obtained from the samples of 365 Canadian firms and observed 1183 cases. Similarly the financial data for the executive compensation was obtained from annual report. They took compensation samples from the 675 U.S. firms and total observations made were 2159 (Zhou, 282).