Discussion 1: Executive Compensation After Reviewing Colem

Discussion 1 Executive Compensationafter Reviewing The Coleman 2016

Review the Coleman (2016) article on executive compensation and consider the assigned readings. Choose one of the following statements and construct a compelling argument supporting your position:

1. The market trend towards escalating executive compensation reflects the critical importance of an executive to an organization’s long-term viability.
2. The growing compensation inequity between executive management and the average employee threatens to destabilize organizational morale and societal justice.

Sample Paper For Above instruction

Executive compensation has long been a topic of debate among scholars, practitioners, and policymakers. The rising trend of executive pay, particularly in large corporations, has garnered attention due to concerns about fairness, societal impact, and corporate governance. This essay supports the statement that the market trend towards escalating executive compensation reflects the critical importance of an executive to an organization’s long-term viability, examining the rationale behind this perspective in light of existing research and industry practices.

Advocates for high executive pay argue that the role of top management is instrumental in steering an organization toward success, innovation, and sustainability. Executives are tasked with formulating strategic vision, managing risk, and leading organizational change in a rapidly evolving business environment. Coleman (2016) emphasizes that executives often oversee complex global operations and are responsible for significant financial decisions that impact stakeholders, employees, and shareholders alike. Given these responsibilities, competitive compensation packages are necessary to attract and retain talented leaders capable of guiding organizations through volatility and competitive pressures.

From an economic standpoint, the market for executive talent operates similarly to other highly specialized labor markets. The scarcity of qualified candidates for top executive roles means companies must offer attractive compensation to secure leaders with the requisite skills, experience, and judgment. As noted by Weathington and Weathington (2016), performance-based incentives form a substantial portion of executive pay, aligning individual rewards with organizational outcomes. The design of these incentive schemes aims to motivate executives to prioritize long-term strategic goals and shareholder value creation, which ultimately enhances the company's sustainability and growth prospects.

Furthermore, the escalating compensation reflects the value that organizations place on effective leadership in achieving competitive advantage. Empirical studies suggest that well-compensated executives are more motivated to pursue innovative strategies, make difficult decisions, and steer the organization through complex challenges. For instance, in industries characterized by rapid technological change or globalization, strong leadership becomes even more critical, justifying higher remuneration (Fama & Jensen, 1983). The ability to adapt to external shocks and capitalize on new market opportunities can determine a company's future viability, making executive talent essential.

Critics argue, however, that disproportionate executive pay contributes to societal inequality and damages morale within organizations. While this concern warrants consideration, it is essential to contextualize executive pay within the broader economic landscape. The disparity between executive and average worker compensation has increased over recent decades, driven partly by the principles of market competition and the demand for top-tier leadership. Coleman (2016) notes that the performance incentives linked to executive compensation are designed to align leaders' interests with organizational success, which ultimately benefits all stakeholders, including employees and shareholders.

In conclusion, the escalation of executive compensation can be justified as a reflection of the crucial role that executives play in organizational long-term success. Their strategic decision-making, risk management, and leadership qualities directly influence the company's sustainability and profitability. While addressing concerns about equity is vital, fundamentally, competitive executive pay is a necessary investment to ensure organizations can attract and retain the talent essential for enduring success in complex business environments.

References

• Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. Journal of Law and Economics, 26(2), 301-325.
• Weathington, B. L., & Weathington, J. G. (2016). Compensation and benefits: Aligning rewards with strategy. Bridgepoint Education, Inc.
• Coleman, B. (2016). Executive compensation. Retrieved from https://www.investopedia.com/articles/financial-theory/09/executive-compensation.asp
• Gabaix, X., & Landier, A. (2008). Why has CEO pay increased so much? The Quarterly Journal of Economics, 123(1), 49-100.
• Bebchuk, L. A., & Fried, J. M. (2004). Pay without performance: The unfulfilled promise of executive compensation. Harvard University Press.
• Finkelstein, S. & Hambrick, D. C. (2010). Strategic leadership: Theory and research on executives, top management teams, and boards. Oxford University Press.
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• Murphy, K. J. (2013). Executive compensation: Where we are, and how we got there. In R. G. Reder & S. S. Wadhwa (Eds.), Handbook of the Economics of Corporate Governance (pp. 211-240). Elsevier.
• Core, J. E., Holthausen, R. W., & Larcker, D. F. (1999). Corporate governance, chief executive officer compensation, and firm performance. Journal of Financial Economics, 51(3), 371-406.
• Jensen, M. C., & Murphy, K. J. (1990). Performance pay and top-management incentives. Journal of Political Economy, 98(2), 225-264.