Current Trends in Executive Compensation

Current Trends in Executive Compensation

Several trends have developed in the modern debate over executive compensation packages. The media has uncovered a number of instances in which executive compensation at publicly-held corporations was not obviously disclosed. Critics maintain that this information should be transparent for the benefit of shareholders. Annual reports are complex documents and it is possible to bury the information in these reports making it difficult to determine what the actual executive compensation packages include.

In theory, a corporate board of directors represents the interests of the stockholders. In practice, however, many board members often owe their position to the very CEO whose actions they are supposed to oversee, creating a conflict of interest and raising questions about corporate governance.

Recent news reports have suggested that the pay of some executives has not reflected their success in leading their companies. In early 2007, Robert Nardelli, the CEO of Home Depot, was forced out of his position due to stockholder unhappiness with the company's seemingly stagnant stock price. His severance package was valued at over $200 million, a figure pointed to as evidence that executive pay is not always linked to performance or productivity.

CEO compensation is just one element in the larger social trend in the United States toward the concentration of wealth in the hands of a relatively small number of people, sometimes described as the top-one percent (or about three million people, plus their families). Based on research by economist Edward N. Wolff of New York University, in 2001, the top -one percent of households owned 33.4 percent of all privately held wealth; the next 19 percent owned 51 percent, which left about 16 percent of the wealth in the hands of the bottom 80 percent of the population.

In early 2009, amidst the severe recession, several institutions that had been the recipients of the massive economic bailout package paid exorbitant bonuses to top executives. In January 2009, Merrill Lynch CEO John Thain resigned over allegations that the company paid out billions in bonuses after receiving taxpayer money for a bailout package.

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